Fewer people are purchasing luxury items as there is just not enough cash left in people's accounts. Could it be that we spend more than we really should on personal treats such as the latest electronic gadget? Is it that we no longer understand the importance of saving? Or is it because living expenses have increased so much that we no longer have anything left to put into our saving accounts?



The rise in food prices, fuel costs and an increase in borrowing rates have led to great financial difficulties for near enough everybody. And what's more, it is expected that many mortgage lenders are likely to increase their fixed rate mortgages in the next few weeks according to comparison website, MoneySupermarket.com.

Everyone is affected by the weak economic activity and puts great blame onto the “the credit crunch-” an unwelcome guest which made its way to the UK from America last August. But a great number of people don't fully understand what the term means.

Chairman of the Institute of Economic Affairs' Shadow Monetary Policy Committee, Professor Spencer described the credit crunch saying how in recent years, more and more people borrowed more money from the UK banks which then had to borrow from international banks to supply us with mortgages and other debts.

But now, what used to be a mortgage feast has turned into the mortgage famine. There is no more money left to borrow and we are suffering as the economy slows down.

A great number of people are likely to suffer from the effects of the credit crunch. First time buyers struggle to borrow because of the mortgage famine. Not only are first time buyers affected by the withdrawal of the 100% mortgages, Banks are now becoming even more reluctant to lend.

Those unfortunates who did manage to get the 100% mortgage will be disappointed to find that they may need to pay more than the actual value of their home.

Interest rates are higher and first time buyers are left in a tricky situation as they find it more difficult to get a mortgage regardless of the ongoing decrease in UK house prices.

First time buyers are not the only people who are suffering. According to the financial analyst, Moneyfacts, an estimation of 90 mortgage deals are currently being withdrawn a day.

Homeowners with mortgages should try and pay off as much of their mortgage as soon as they can due to the rising of mortgage rates. Remortgaging is also becoming more difficult.

Those with bad credit are also at risk as lenders cut back.

The slowdown of the economy has led to rise of price in food, fuel, energy bills, tax and water rates. As a result, more consumers are turning to their overdrafts as a form of attending to their financial needs. Shopping habits have also changed as a result of the credit crunch.

Alternatively on a positive note, according to expert Howard Archer, Chief European and UK Economist at Global Insight, interest rates may drop to 4% by 2009 due to the weak economic activity. House prices may therefore increase yet borrowing will become cheaper and people will once again have enough money to spend on other things.

Although this could mean waving goodbye to the credit crunch, it could also mean that over the years people will begin to borrow excessively again, thus the credit crunch could come back for yet another visit.