Whilst this may seem far removed from the daily grind of most people’s lives, the effect of this action will have far-reaching implications around the globe and already has seen a positive affect on global stock markets.

Most UK homeowners will have never heard of either company, but together they are the largest holders of home loans in the world and as the saying goes, ‘when America sneezes, the rest of the world catches a cold’. In the last year they had been suffering unsustainable losses, as the American home loans market went into freefall and this was a large part of the credit crunch being felt by all.

Once confidence was lost in America, Asian backers stopped investing funds and the resulting lack of liquidity on the loans market has meant that everything from business loans to small personal loans has been affected by a lack of funds to be lent.

With this move – long overdue according to finance pundits – investment into America is likely to restart from healthier financial markets which experts hope will begin to halt the recession which is threatening to sweep the world.

What does this mean to the average borrower? Well, funds are unlikely to rush into the market instantly, but finance is a fast moving beast and so hopes are high that relief will be imminent for Western business and individuals. Particularly in America where an estimated 9% of homeowners are behind in loan repayments, risking repossession, bankruptcy and long term bad credit.

According to figures out from Standard & Poor, nearly a quarter of all bad credit home loans are now in arrears – many by as much as 90 days. This is up from 22% in the last quarter surveyed and now officially at a record level.

Comparison website Moneysupermarket have commented that this situation is of course attributable to the credit crunch, as nearly all homeowners have been faced with increased interest rates. For families who were already on a higher than average rate, a price rise can make it impossible for repayments to be met.

Additionally, the tighter lender criteria now in place across the loans market has made it nearly impossible for families to find cheap loans when a fixed rate deal comes to an end.

With fewer loan products on the market and many lenders pulling out of the sub-prime loans market, borrowers are having real difficulty in finding a bad credit loan at a price they can afford.

With reports on an increasing number of repossessions taking place and uncertainty in the jobs market, UK debt charties are bracing themselves for floods of enquiries. As colder weather sets in and fuel requirements rise, more families are likely to be plunged into the cyle of bad debt.

The figures which were released by the Insolvency Service show that 26,072 people were declared insolvent in the three months after the credit crunch hit. This is a fall of 3% on the number of insolvencies in the previous quarter and a fall of 5% of the same period the previous year.

While the number of bankruptcies had increased by 2.2% on 2006 to a total of 15,833, the number of individual voluntary arrangements (IVAs) was actually down by 14.3% to 10,239. The large drop in IVAs, which allow borrowers to write off some of their debt in return for creating a payment schedule with creditors, could be explained by the fact that most lenders dislike the schemes since they are then forced to write off bad debts. With banks needing to claw back as much money as they can, they are refusing to allow personal loan and credit card customers to ‘go bad’.

While it is not clear which lenders were behind the majority of rejections for IVAs it is believed that Northern Rock is on of the main contributors rejecting all applications for IVAs. This is unsurprising, given its recent history.

HSBC has also changed its policy to IVAs. In the past, repayments for IVAs came in somewhere around 25p for every £1 owed to the lender. HSBC has now upped its threshold to 40p for every £1 borrowed.

As a result of these changes borrowers are now more likely to enter into debt management plans with their creditors.

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. The Lib Dems studied homes which were spending 75% of their disposable income on home loan repayments and say that there were twice as many homes on the list than last year.

The CML now believes that the property market is on the verge of the most serous crisis since Labour came to power a decade ago. The warning was sounded on the same day that the Bank of England published figures showing that the housing market was going into rapid decline.

Borrowers have been hit by a double whammy in the past 12 months and this has left many people in serious financial difficulty. On the one hand five Bank of England interest rate rises in the past year sent mortgage repayments cost soaring by as much as £200 a month extra. Subsequent rate drops have not eased the burden. On top of this the global credit crunch means that many borrowers can no longer get access to additional credit since banks are now tightening up on their lending criteria and finding it hard to borrow the money themselves in order to lend it on.

In the mean time, cost of living has risen sharply, with increases in food prices and fuel costs, but little increase in wages. Consumers burdened with personal loans and credit cards, taken out in healthier financial times are now finding themselves squeezed hard.

His accusations came out in an interview with the Daily Mail. Mr Darling told banks and building societies that they must be more responsible in the future.

The hard line the chancellor took with lenders came on the same day that the International Monetary Fund released a report which stated that Britain’s economy was highly susceptible to a property crash.

Mr Darling told the Daily Mail that ‘unsustainable house price is not good for individuals, is not good for the economy, so I think it will slow down.’ A slowdown is desirable and likely according to the chancellor.

This was the first interview the chancellor had given since he announced his Pre-Budget Report and he left little doubt about his displeasure and irritation with mortgage lenders. The chancellor has demanded that in the future lenders ask more questions in order to ascertain whether or not a borrower will be overstretching themselves.

The types of loans that encourage borrower to overstretch might be Abbey’s change of rules which meant that home loans of between five and seven times borrower’s salary were allowed.

Other examples singled out as irresponsible lending included a Northern Rocks mortgage which allowed borrowers to take out more than 125% of the value of a home (this loan has since been discontinued).

The Financial Services Authority has also found that one in six borrower’s are taking out interest-only mortgages made popular because of their cheap monthly repayments.

A recent study reveals that more than fifty percent of adults admitted to not reading the small print when buying financial products, mobile phones or electrical goods.  This is disturbing as often the lack of understanding of the fine print in your contract can lead to major problems or, in extreme cases, financial ruin.  Once a repayment contract on a credit deal – such as a mortgage or personal loan – has been breached, penalties and charges can snowball, putting the consumer at risk of losing their home.

One of the most important contracts where fine print must be completely understood is the credit card agreement.  All credit card companies are in the business to make a profit off their customers and with the Office of Fair Trading cracking down on unfair charges, credit card companies must then find other ways of making a profit.  Some of these ways include cash withdrawal fees, foreign usage charges; higher interest rates if the cardholder defaults as well as shorter interest-free periods.  It is important that consumers first read over the fine print of the credit card agreements before activating an account.  Often credit card holders fail to read over their agreements properly and overlook items such as handling fees for balance transfers or the high interest rates that are charged on cash withdrawals, and in some cases credit card providers are allowed to reprice a contract should the cardholder default on payments, which means they can then start charging a higher interest rate.

The government has been working to reduce the inflation rate, hiking interest rates five times in the last year, and promising at least one more interest rate hike within the next six months. This has many homeowners scrambling to make payments on mortgages. Many people have seen their monthly payments increase one or two hundred pounds, even though they have paid down their mortgages.

The Council of Mortgage Lenders reports that repossessions increased by 30 per cent in the first half of 2006, highlighting to first time buyers the potential pitfalls of taking on too large a home loan. Unofficial figures show that they also increased dramatically in the first quarter of 2007.

The cost of moving, upgrading a new home, and a mortgage, is making it impossible for many homeowners’ to move, despite the inflated price of their current home. Many are opting for a second mortgage, or a secured loan, and renovating, hoping that the equity in their property will hold long enough that it will become affordable to move up into a nicer home, or a better neighbourhood.