Recently the Government announced that it was offering cuts in interest rates payments for those with home loans worth up to £400,000 who have been affected by the credit crunch and as such cannot pay the mortgage any more.

However, borrowers will still have pay in two years even though some of them who are unemployed may be unable to make the repayments. The credit crunch has hit many British financial institutions forcing banks to tighten lending despite the cut in interest rates. For many borrowers, the main difficulty is getting the money rather than worry about the cost of borrowing post crunch.

Banks holding back on interest cuts

After the government slashed a series of interest rates, the assumption was that banks would readily pass on the cuts to their customers and that money would cheaply available, however, lenders have since passed little or no rate cut.

But the fact that banks are reluctant to lend money could mean that the economy might take even longer to recover and as experts suggest, the problem is not the cost of credit but its availability. Market sources also say that loans may continue to be difficult to obtain unless banks trust each other and the inter-bank market reboots.

Arguably, this may happen if lenders are made to list their potential sub-prime losses because although low interest rates may sound like a good economic boosting move today, market experts believe that all it does is create false hope that banks can carry on without making “full disclosure”.

Falling pound equals expensive imports

So should we worry about the weakening state of the pound especially after last week’s figures show that sterling is off 5 percent against the Euro and only 6.5 percent against the dollar. A quick look at the UK manufacturing industry shows that the sector is fast collapsing as inflation hits. Many argue that Britain does not have enough “stuff to flog” which means that the recent VAT cut will not help the industry.

It has been suggested that in theory, the falling pound is good news for British manufacturers, however, this can only happen if the banks offer help instead of forcing them into bankruptcy by calling in loans. The US congress on the other hand agreed to inject $15bn-$17bn bailout money to the fast collapsing American motor industry.

But it is not just the car industry that has been affected by the worsening economic decline, studies suggest that a quarter of UK adults are in deeper debt than they were three months ago. An estimated 27 per cent have seen their debts increase further while 4 per cent have increased their debts by a massive 20 per cent over the same period and 17 per cent have managed to cut their debt levels.

Research further shows that 30 per cent of UK adults are worried about their chances of managing their personal debt. At the same time new homeowners, who are typically aged between 25 and 44, are increasingly concerned about being able to repay their debts.