Food

Cheryl Asterley lives with Rory, her 13-year-old son, in a three-bedroom home in Hoylake, Mersey-side. Her mortgage deal is fixed for five years, coming to an end in 2012. “I’m very relieved I’ve got a long-term deal,” she said. “I couldn’t afford any increase in my repayments.”

However, increases in the cost of groceries, utilities and petrol are eating away at her disposable income. Cheryl, 46, earns £20,088 as a restorative justice worker for the Youth Justice Service in Liverpool, but the lion’s share of her take home pay goes towards the repayments on her £86,000 mortgage, which are £595 a month.

Cheryl receives child maintenance from Rory’s father and child benefit, but she does not collect child tax credits because she believes she would not be able to afford to return the money if the Treasury overpaid her. “I can’t believe how much more food costs, and gas and electricity prices are a really big issue for me too. Both are hitting people like me really hard.”

Fear factor 8/10 (no change from March 25)

Holidays David Ward, 35, and his wife Amanda, 36, go on holiday to Majorca, Spain, every summer with their two young children, but this year the couple are considering staying in Britain. The falling value of the pound against the euro has meant family packages are up to 20 per cent more than last year. David said: “I’ve really noticed how much the price of a holiday in Europe has gone up”.

If they do not stay in Britain, the couple are considering reducing the length of their break.

Flights and accommodation usually cost about £2,000 and David and Amanda usually spend about £1,000 while they are there. “It isn’t just the cost of the hotels you have to consider,” David added. “The weak pound makes things like food and leisure activities a lot more expensive too.”

The Wards have also seen their mortgage repayments jump by roughly £100 a month for the last three months, and living costs, like food and utility bills, are soaring. “The main problem is the uncertainty,” David added. “We do not know how much our mortgage or living costs are going to rise by in the next few months.”

Oil is the key to world recovery

The shock of $140 oil has created inflationary and deflationary pressures that threaten world economy and policy tools

• Former President Bush energy adviser says oil is running out

BACKGROUND

• Oil is the key to world recovery

• Banks may need to pump billions into scheme

• UK economic growth weakest for three years

Related Internet Links

• Full credit crunch coverage

BACKGROUND

• Happy days are over for UK households

• Banks restrict mortgages by brokers

• Credit crunch halves lending at Nationwide

• JPMorgan to cut Bear Stearns jobs

• George Soros: Crunch will bite deeper in UK

Related Links

• Analysis: Bank walking a tightrope

Fear factor 8/10 (up from 7/10 on March 25)

Fuel

Frank and Dorothy Beevers travel about 6,500 miles every year in their motorcaravan, but this year they are struggling to cope with the rising fuel costs. The retired couple, from Bexley, southeast London, live on the state pension and a private pension of about £4,000 a year. They have a three-bedroom house worth £350,000 and some savings and investments.

“The garage down the road didn’t put their prices up straight away, so I filled up my tank before they rose,” said Frank, 65. He added that his finances were being hard hit by the soaring price of diesel - now 116p a litre. The couple are members of the motorcaravaners club and go out most weekends. In summer they take a longer break, driving up to 500 miles around the country. They said that they were planning to go away less often. “It is not just the price of diesel,” Mr Beevers said. “It’s more expensive for us to heat our home and pay for our food.”

Fear factor 5/10 (up from 4/10 on March 25)

Mortgages

Graham Smith, 41, and his partner, Candice Niven, 34, want to sell their two-bedroom flat in Newcastle upon Tyne and move to a larger home with their ten-month-old baby daughter, Rosie. They are not worried about the falling value of their flat because the cost of the properties they are looking to buy is falling, too. “The big problem is getting a mortgage”, Graham said. “I doubt we’ll have enough equity to get a 25 per cent deposit required for the best deals. We will have to lower our expectations of what we can buy.”

The couple are both physiotherapists. Graham has been self-employed for the last three years and supplements his income by teaching. Candice works for the NHS. Their total income is about £40,000 a year.

They have been told by a mortgage broker that they could get a mortgage of about £225,000. “We could probably afford an interest rate of about 6.5 per cent, but any more and we would be struggling,” Graham added.

Fear factor 8/10 (up from 6/10 on March 25)

But on the other hand . . .

Anna Saggerson, 30, is keeping her fingers crossed that house prices in London will fall in line with the rest of the country. The PR executive, who earns £25,000-£30,000 a year, rents a room in a shared house in Denmark Hill, South London, but is desperate to buy a property.

To afford a two-bedroom home in her area (currently about £300,000), Anna thinks that house prices would have to fall by about 25 per cent in a few years. “A drop in house prices would be really positive for me. It is really the only way I will be able to get on the property ladder,” she said.

Fear factor 4/10 (down from 5/10 on March 25)



Key questions

Why did many mortgage rates go up yesterday? The banks have been finding it difficult to get funding during the credit crunch. Loans between banks have been used traditionally to fund cheap mortgage deals. These loans have dried up, and so have the cheap mortgage deals.

But what’s the point of the rate cut, if it won’t make any difference to my mortgage or to inflation? There is huge pressure on the Bank of England to act to shore up confidence. The quarter-point cut may not have the impact that the Bank would like, but not acting would have sent shockwaves through markets.

I thought interest-rate cuts hurt the pound. If the pound weakens further against the euro, won’t I have less money for my holiday (and second home) and feel poorer? Most probably, yes. The pound slumped against the euro yesterday, which means that £1 buys you fewer euros. Anyone exchanging large amounts of currency can minimise the impact of currency fluctuations by using a foreign exchange broker such as HIFX or Moneycorp, which charge less commission than traditional bureaux.

My fixed-rate mortgage is about to come to an end. What should I do? Sticking with your lender’s standard variable rate is rarely the best option. Brokers say that fixed-rate deals, though expensive, are still more competitive than discount trackers – home loans that track the base rate. If you can fix for five or even ten years, some lenders are now offering a better rate on these long-term deals than on a two-year fix.

What is going to happen to my savings? Early announcements indicated that some savings banks are not going to cut savings rates – which is good news for their customers. Kaupthing Edge, the Icelandic bank, said it would keep paying customers 6.5 per cent. However, what happens to your rate depends very much on where you keep your money. While some banks are likely to continue to offer attractive rates in an effort to boost their liquidity, others may cut rates to save some money.