Recent data revealed that the slowdown in the manufacturing and retail sectors is sharper than had been anticipated and the latest house price and mortgage data point towards an increasingly nervous consumer.
Both Nationwide building society and Halifax have reported that the average house price is now marginally lower than it was this time last year - this is the first annual fall for 12 years. Halifax has also revised its forecast for this year. It had previously expected house price growth to be flat in 2008, but is now forecasting falls of between 4% and 6%. However, given the strength of the housing market over the past decade most homeowners will still have significant equity in their homes even if property values do fall back 5% or even 10%.
That said, some analysts are warning that property prices are set to fall by at least 30% over the next few years and while the economic fundamentals don't point to a housing market crash - employment remains strong, interest rates are low and we have a shortage of housing in the UK - the risk of a more severe downturn heightens the longer the credit crisis continues.
Much depends on consumer confidence, and worries about house price falls coupled with a shortage of mortgage deals means the market is in danger of grinding to a halt. If this happens, sharp price reductions may be the only way to kick-start it again.
Borrowers continue to struggle
Last month's quarter-point rate reduction appears to have done little to ease the mortgage squeeze.
As we reported last week, a number of lenders chose not to pass the full rate cut on to customers with mortgages linked to their standard variable rate (SVR).
Many providers are also still struggling to raise funds for new mortgages. As such the number of mortgage products available continues to shrink. According to moneysupermarket.com's credit crunch monitor, 304 mortgage deals were pulled between April 28 and May 5.
And, despite last month's interest rate cut, the pressure on rates for new customers is still upward. HSBC, Bristol & West and Giraffe have all just increased the rates on some of their products.
It is also still too early to say whether or not the Bank of England's recent initiative to allow certain lenders to swap mortgage debt for government bonds, will help ease the liquidity crisis. However, most analysts agree that even if it does make wholesale funds more readily available, it will not be enough to bring the mortgage market back to normal.
Iain Cornish, chairman of the Building Societies Association, has warned that it could take at least two years for the mortgage market to recover.
Louise Cuming, head of mortgage services at moneysupermarket.com, said: "There are still no signs of stability returning to the market and my advice to anyone who will need a mortgage in the next six months or so is to act quickly. Even though further cuts in Bank rate could be around the corner, this does not mean mortgage rates will fall."
Mortgage offers remain valid for between three and six months, depending on the provider, so even if your current deal doesn't expire until towards the end of the year it is worth looking for a new mortgage soon.
What's available?
Despite having just increased some of its mortgage rates, HSBC remains one of the most competitive providers at the moment.
It is offering the leading two and three-year fixed rates at 5.98% on loans up to 90% of the property's value. The fee on both is £499, although it is also offering a lower three-year rate of 5.53% to those willing to pay a £999 arrangement fee. Which product is best value will depend on the size of the loan, but those borrowing larger amounts may be better off paying the higher fee.
If you have a deposit of 25% or more and don't want to fix for three years, Mansfield building society's two-year fix could be a better option. The rate is 5.75% and the arrangement fee is £999.
With further interest rate cuts likely this year, you may prefer a variable rate deal. Again, HSBC scores well. It has a two-year discount at 5.43%, available for loans up to 90% and with a £999 arrangement fee. However, this deal is linked to HSBC's SVR and not to Bank rate and while HSBC has passed on all the recent rate reductions in full, there is no guarantee that it will do so going forward.
Another option worth considering is a lifetime tracker - most don't levy early redemption charges so you can redeem your loan at any time. Given the current state of the mortgage market this could be an ideal choice: it is linked to Bank rate so you are guaranteed to benefit in full from any further rate cuts and you can get out of the deal without incurring a penalty. So when some stability does return to the mortgage market you could switch onto another product quite easily.
That said, the rates on lifetime trackers look very appealing at the moment so you are not having to pay a premium for this flexibility.
HSBC is offering the lowest rate at 0.63 points above Bank rate, giving a current pay rate of 5.63%. This deal is only available to those remortgaging and includes an arrangement fee of £999.
Egg also has a great lifetime tracker. The rate is slightly higher than HSBC's at 5.75%, but it is available for purchases as well as remortgages, and there is no arrangement fee.
If you are unsure about which mortgage to go for, ring one of our advisers for tailored advice on 0845 345 5705.
The party's still not over for savers
While many borrowers are finding it hard to get mortgages and loans, savers continue to enjoy some incredible savings rates.
Anyone who can afford to lock their money away for a year, can earn more than 6.5%. Icesave, owned by Icelandic bank Landsbanki, is offering the best one-year fixed rate bond at 7.01%. This is available on balances between £1,000 and £2m.
ICICI Bank has a one-year bond paying 7.0% to customers with its Hisave easy access account. That too is paying a competitive rate of 6.16% on balances above £1.
However, a number of other providers are also offering fixed rates above 6.5%. These include National Counties building society, Cahoot, Birmingham Midshires, Kaupthing Edge and Halifax. Click here to see how the deals compare.
Withdrawals aren't usually permitted during the fixed term, so if you would prefer an easy access account, Abbey, Alliance & Leicester and Kaupthing Edge have the best rates. They are all offering 6.5%.
Abbey's Instant Access account is available on balances between £1,000 and £2m. It has no withdrawal restrictions although it includes a one percentage point bonus that lasts for 12 months.
While A&L's eSaver also has a rate of 6.50% and is available on balances of just £1 or more, you do not earn interest in any month you make a withdrawal (with the exception of July when you can access your money without penalty). The rate includes a 0.88 point bonus which runs until May 31 2009.
Alternatively, Kaupthing Edge's Instant Access Savings account also pays 6.5%. Available on balances between £1,000 and £1m, there are no withdrawal restrictions and no introductory bonus.
Have your say: What do you think is going to happen to the housing market? Are widespread falls on the horizon or do you think things will pick up again if we have another interest rate cut or two? Visit our community forum and let us know your views.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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