There is a saying among economists, "When America sneezes, the world catches a cold". This means that if the US experiences an economic downturn then so does the rest of the world. This saying certainly seems true at current times with the ongoing global credit crunch which started with sub-prime mortgage lender issues in the US. You've no doubt been hearing about the crunch and the huge figures wiped off the stock markets but what does it really mean to the typical individual?

The credit crisis, cause by the burst of the US housing bubble, has been magnified because many central banks are now unsure of the kind of risk carried by many of their customers. Due to a lack of regulations for US lenders many US banks underwrote home loans to consumers with less than ideal credit scores, known as sub-prime consumers. They then onsold these "bad loans" to financial institutions around the world. Desperate to prevent further losses from the sub-prime fallout - which the International Monetary Fund (IMF) has estimated to top out at $945 billion dollars - banks have now imposed tougher credit checks in order to protect their mortgage loans. For first-time buyers, this is often one of the toughest consequences of the credit crunch, as new credit is often seen as a major risk to banks and mortgage lenders. One of the big casualties have been the major non-bank lenders who have normally provided a good option for first time buyers. Virgin Money for example has had to stop providing mortgages as they can no longer get the funding they require from other lenders to finance those loans.

As the costs to the banks increased and to protect their assests many banks have been raising interest rates way above official interest rates and as a result a record number of home foreclosures have been seen. This has been a major contributor to the downward spiral of the global credit crunch, as home foreclosures result in an increase in interest rates for mortgage loans, which in turn spurs on more home foreclosures. For the average consumer, this means that more and more banks will refuse to underwrite mortgage loans, in an effort to protect their dwindling profits. If you happen to have anything less than a perfect credit score, this presents even more of a challenge, as anxious banks have come to view average credit scores as a risk equal to that of a sub-prime borrower.

So, what does this really mean for you? Even if you're not in the market for a new home, or can still make your mortgage payment, the credit crunch is still draining your wallet. Prices for food, fuel, and utilities have been skyrocketing, while job opportunities are decreasing - so while you may be making the same salary, your cost-of-living is significantly increasing each day. Many people who once lived within their means are now struggling to stretch each paycheck, with what seems to be no relief in sight.