Prepare for the largest ever peacetime liquidity crisis

David Kuo, Head of Personal Finance at Fool.co.uk, says: “Consumers are urged to heed the warning by Rachel Lomax that the present financial crisis will persist and possibly intensify.

“The deputy Governor of the Bank of England in her speech to the Institute of Economic Affairs also warned that there may be more financial shocks to come. However, she admitted that they were unable to predict what impact they could have.

“Faced with such uncertainty, homeowners who are nearing the end of their mortgage deal may need to drastically prune their household expenditure in order to meet higher mortgage repayments.

“A borrower currently paying £1,228 a month could be faced with an unpalatable £296 jump in monthly repayments if they are forced onto their lender’s standard variable rate (SVR) when their current deal ends.

“This a distinct possibility if lenders are caught in the largest ever peacetime liquidity crisis highlighted by Rachel Lomax.

“But while sophisticated economic models are unable to identify the extent of the current credit crisis, consumers can stick to the tried-and-tested model of living below their means. And doing so sooner rather than later will help cushion the blow.”