House prices are expected to fall by 9% during this year and house sales by 45%, severely affecting consumer’s ability to pay back loans.

According to predictions made by HBOS, owner of Halifax, the UK’s biggest mortgage lender, the drop could result in customers failing to keep up with their home loan repayments. In addition to this, the bank said it expected the number of mortgages sold this year to drop. Usually the bank makes up one in five mortgages but has said it only expects “modest growth” in business this year.

The bank explained: "We expect the UK economy to slow further in 2008, with a modest rise in unemployment and low interest rates, accepting that inflationary pressures will restrict the monetary policy committee's ability to reduce interest rates to below current levels. We expect house prices to fall by up to 9% in 2008."

The latest figures released by the Council of Mortgage Lenders also showed a drop in total lending of 19% for this year.