Unfortunately, once you have bad credit, it becomes very difficult to get back on the other side of the curve. Only by paying off all the debts that you have can you hope to qualify for a home loan in the modern day, as criteria becomes more and more strict, tremendous levels of numbers of individuals get turned away from banks and lending institutions unable to achieve the home loans that they require to buy their own home and live independently.

“The pace of home-price declines slowed down for the fourth straight month in June and the number of metro areas exhibiting monthly gains rose from seven to nine, according to the S&P/Case-Shiller 20-city composite index. There are also signs more buyers may be getting ready to return to the market. The Conference Board says the share of households planning to buy a home within six months is now at its highest level since March,” stated Frank Nothaft, of Freddie Mac.

That means that even in the UK, buyers are not deterred by higher fees. “Last year the market for sub-prime was so competitive that some rates being offered were only fractionally higher than standard residential rates,” says Darren Cook, mortgage expert at Moneyfacts.co.uk. “Now, as lenders continue to factor in margins for higher risk, sub-prime customers are paying the price with rates up to 2.75% higher than the same time last year.”

Stephen Gifford, Grant Thornton’s chief economist stated, “Despite the global downturn flattening the growth of personal debt and GDP over the past few quarters, debt levels continue to grow at a faster rate than the income the UK generates.

“Although there is no cause for panic as personal debt is well-covered by the UK housing stock, the figures illustrate the continuing problem of growing personal debt levels in the UK.

“If the property market and economy continue to weaken, the current levels of personal debt will become unsustainable and there will be a marked increase in personal insolvencies.”

Michelle Slade, an analyst for Moneyfacts.co.uk, said: ” It is highly unlikely that we will ever get back to the same levels that we were at a year ago.”

She added: “One year ago the financial world changed completely as the credit crunch took hold. Today the world of mortgages is a completely different place. There does not appear to be a single aspect of the mortgage market that has not been unfavourably hit.

“Over time the mortgage market should continue to improve from its current position. The number of products will steadily increase and rates will lower with increased competition between lenders.”

“Lenders are starting to bring their rates down,” said Aaron Strutt of mortgage brokers Chase de Vere. “Since the Nationwide cut its rates others have been bringing their rates down too.”

“Some lenders have been cutting their rates more than once a week, so overall the cuts have been quite big,” said Ray Boulger of John Charcol. “The most important thing though is the cost of the best deals; but I have no doubt that the average rate for July will be lower than for June.”

“Global financial markets continue to be fragile and indicators of systemic risk remain elevated,” the IMF said. “With inflation risks on the rise, the scope for monetary policy to be supportive of financial stability has become more constrained.”

Jaime Caruana, director of the IMF’s monetary and capital markets division, said: “A bottom for the housing market is not visible. We consider this market is still at the centre of this turmoil and some of the valuations still depend on where this market finds a bottom.”

As economies slow, credit deterioration is widening and deepening, and as banks deleverage and rebuild capital, lending is beginning to be squeezed, restricting household spending and clouding the outlook for the real economy,” Caruana added.

“Lending levels continue to be lower than last year and any recovery is still some way away,” said the CML’s director-general, Michael Coogan. “The growing popularity of fixed rate mortgages, despite the relatively high rates, suggests that many borrowers are prioritising certainty in their monthly payments.”

Phil Perry, director of Cheshire-based IFA Ark Financial Planning, said: “I can see the decline in remortgaging happening because people are finding it more cost-effective to stay with their current company. There is more of an argument to stay with your current provider at the moment that to move around. These are uncertain times and more people are looking to fix their payments but it is at least one thing they have control over unlike rising food and fuel prices. At least they are able to budget for their future mortgage payments.”

Darren Cook, mortgage analyst at Moneyfacts.co.uk, said: “It is now three weeks since the peak in swap rates and we would expect to see the cost of fixed-rate deals starting to fall, but this isn’t the case. In fact the opposite is true, with rates continuing to rise.”

Liberal Democrat Treasury spokesman Vince Cable stated, “The government is in a state of denial about the economy,” he said. “It does not seem to realise that a recession is looming combined with painful inflation and that the housing market is in a state of collapse dragging down construction companies and mortgage lending banks as well as, potentially, millions of home buyers.

“We suggest that the government’s plan for property acquisition - £200m, about 1,000 homes over several years - should be on a much bigger scale, perhaps 100 times bigger. Social landlords should be given the freedom to buy unsaleable properties at a deep discount to meet local housing needs.”

Darren Cook, mortgage expert at Moneyfacts.co.uk, comments: “As predicted by Moneyfacts, the average rate for two-year fixed rate mortgages available on the market today breaks the 7% barrier and stands at 7.02%. Anyone looking to fix their mortgage for five years is also paying the price as the average rate on offer now increased to 6.82%.

“This increase is a result of the two-year swap rate reaching 6.52% last week. Any increased cost to lenders in arranging the funds on the money market is passed on to customers. Lenders are also taking an increased margin on top as they price their products for risk.”

Darren Cook of MoneyFacts stated, “If the current economic climate persists, it is not unreasonable to predict that we may see a situation where a higher proportion of borrowers are on their lender’s SVR, rather than on an actual mortgage deal.”

‘Other lenders are likely to follow suit, making mortgages even more expensive for those remortgaging or buying a new home,’ says Melanie Bien, director of mortgage broker Savills Private Finance. ‘Unfortunately, until confidence returns to the money markets, the cost of borrowing is likely to remain high.’