As the credit crunch continues to take its toll on the property market Halifax, the country's biggest provider of home loans and  part of banking group HBOS, said in its latest monthly survey that house prices fell 0.9 percent in April from a year earlier. The last time British house prices dropped on a 12-month basis was in 1996.

And as house prices suffered their steepest annual fall in 15 years in April, stoking fears of a deep downturn, figures have shown that in the first three months of 2008 more than 25,000 people fell prey to bad debt.

The average value of a home in the UK has dropped by £44.39 every 24 hours or £310.73 a week so far during 2008, as the property market slows down, according to website Zoopla.co.uk.

Business information provider Equifax warns that a rise in the number of business going bust could be a sign that the credit crunch and higher interests rates are  starting to have an impact slowing the economic growth to 1.8%.  Sectors forecast to be worst hit are the manufacturing, retail, property and construction and services sectors.  The latest Industry Watch report forecasts that business failures will rise to 17,697 in 2008 – a nine per cent increase on 2007.

This adds to growing concerns over the state of the economy and exacerbates the challenge facing Prime Minister Gordon Brown as his Labour party lost hundreds of council seats in its worst local election performance in 40 years.  The Prime Minister pinned the blame for the election results on the global economic slowdown and voters’ concerns over rising food and energy prices and a credit squeeze that has sparked fears of a slump in the housing market.

Gordon Brown  has to call a national election May 2010, Newspapers have reported that Mr Brown is looking to make popular concessions in a win back support for his beleaguered Labour government.  He is considering ditching the rubbish bin tax, delaying the 2 pence-a-litre fuel duty tax rise in October, expanding shared equity schemes to boost the housing market and increasing pressure on supermarkets to rein-in rising food prices.

Seema Shah, a Capital Economics property expert, is concerned with the fact that the drop in  house prices has been the result from only a modest slowdown in the economy.

Falling house prices could be a disaster for homebuyers who bought a property with little or no deposit in recent years. Homeowners who have been dipping into the equity in their home to fund their spending could also face difficulties as lenders are now insisting that borrowers have a substantial deposit or equity stake in their home.
 
As many people currently trying to buy a home know only too well, mortgages have become much harder to get in recent months.

Those that are available come at an increasingly-hefty price.

This is because the banks and building societies cannot get funding as easily as they used to, even this time last year.

They are wary about lending to each other because of the massive losses sparked by the sub-prime crisis in the US.

David Blanchflower, the most dovish member of the nine-member monetary policy committee, has warned that without aggressive interest rate cuts the economy could tip into recession and house prices could fall by as much as a third.
Most economists expect the Bank quarterly Inflation Report to leave the door open to further interest rate cuts, but at a gradual pace.

"We think that after a pause this week the Monetary Policy Committee will cut interest rates again in June and eventually all the way to 3.5 percent," said Paul Dales at Capital Economics.

However, the Bank responded to pressure to ease the squeeze by announcing a move to  make it easier for banks to get hold of cash quickly if they need to or if markets dry up.  As from 8th May commercial banks will be able to hold more funds as reserves at the central bank.

At the end of April the Bank, announced an unprecedented 50 billion pound swap scheme under which banks can trade in their hard to shift assets for risk-free government debt,

It is hoped that this will encourage banks to lend to each other at lower rates, using the bonds as security.

In the past, mortgage assets were used as security on inter-bank lending but since the collapse of the US market banks no longer see these as secure.

As a result, lending between banks has either dried up or now takes place at high rates.

The hope is that by removing the mortgage assets and their assumed risks, banks will begin lending to each other again.

This, in turn, should lead to more mortgages becoming available on the market and at more affordable rates.

Figures released by the Insolvency Service showed that there were 25,264 individual insolvencies in England and Wales in the first quarter of 2008 on a seasonally adjusted basis. This was an increase of 1.7% on the previous quarter and a decrease of 13.2% on the same period a year ago.  However analysts warn that the outlook is still a grim one.

BNP Paribas' Clarke pointed out that the effects of the credit crunch are only just showing up in some of the hard data so it is premature to expect the data to show a tidal wave of insolvencies,"

According to mortgage lenders. the number of families losing their homes due to repossession is set to soar from 30,000 last year to around 60,000. It will mean that the number of house repossessions will double, prompting the worst property crisis in over ten years.
 
The Council of Mortgage Lenders had said that it expects repossession figures to hit at least 45,000 in 2008, but analysis by the Liberal Democrats reckons that the figure will be more like 60,000.

There were 3,210 liquidations in England and Wales in the first quarter of 2008 on a seasonally adjusted basis. This was an increase of 2.0% on the previous quarter and an increase of 4.0% on the same period a year ago.

Britain's construction industry is being hit by the housing market slowdown, with growth in the sector at its lowest level for 12 years. According to the Chartered Institute of Purchasing and Supply British construction activity fell for the second month running and at its fastest rate since December 1998.

While the housing downturn is gathering pace, prices have nearly trebled in the last decade and analysts said record levels of employment suggest the market is not about to crash as it did in the early 1990s.