According to the report, three per cent of adults, approximately 1.35 million people, are afraid they will be declared bankrupt this year, while six per cent believe their homes will be repossessed.

“People don’t know when the credit crunch is going to stop. Many people are starting to feel the pinch, with stock markets falling, their utility bills rising and their disposable income going down – and they may never have experienced that in the past,” says head of loans at MoneySupermarket, Tim Moss.

Research commissioned by Moneyfacts shows that the number of UK mortgage lenders offering 100 per cent mortgages has fallen from 30 to 22, and that more stringent controls are now in place. This could explain waning interest in property buying, particularly among first-time buyers, many of whom are unable to scrabble together a deposit.

Moreover, a study from accountancy firm Deloitte predicts that a further house price decline is on its way and that this could spark a recession. Its quarterly review anticipates a five per cent drop in house prices and an eight per cent decline next year. Economic adviser at Deloitte Mr Bootle believes interest rates may fall to four per cent over the next two years to help prevent a recession in the UK.

Mr Bootle expects household spending to rise by less than two per cent annually for the next couple of years, and suggests job cuts could be inevitable, bringing to an end the “period of easy credit” seen in recent years. He claims overall economic growth in the UK is likely to be just two per cent in 2008 and could fall to around 1.7 per cent the following year. “The increasing vulnerability of the housing market is at the heart of the downturn,” he says.

And this has been backed up by figures from Hometrack, which reported a 0.3 per cent fall in house prices in England and Wales compared with December prices. This is the fourth consecutive monthly decline recorded by the property researcher. Over valued prices, tightening lending conditions and the credit squeeze have led to reduced activity in the housing market and lower prices.

“The short term outlook for market activity hinges as much around the outlook for UK interest rates as it does the outlook for financial markets,” says Hometrack’s director of research, Richard Donnell.

© Fair Investment Company Ltd