Analysts are warning Lehman's collapse could have far reaching implications for UK investments, mortgages and savings. We explain how you could be affected and if you are protected.

Q: How will Lehman Brothers' bankruptcy impact UK consumers?

A: Very few UK consumers will have direct exposure to the bank. However, a number of people may have taken out mortgages through its two subsidiaries SPML and Preferred, both of which offered home loans in the UK.

The group stopped mortgage lending earlier this year and most of these loans are likely to have been sold on or securitised, meaning they no longer belong to Lehman Brothers.

Those that are still owned by the bank are likely to be sold by the administrators. People with one of these mortgages will not be directly affected by the move and should continue to repay their loan as normal.

Q: Will the problems stall any recovery in the UK mortgage market?

A: Today’s developments are likely to bring an end, at least temporarily, the trend for lenders to cut their mortgage rates as they once again compete for business.

A number of the larger lenders are likely to have exposure to Lehman Brothers through credit derivative contracts. It will take some time before they establish the size of their exposure and how much they will have to writedown as a result.

In the meantime, banks are likely to cut back on mortgage lending again until they know where they stand.

However, it is unlikely that lenders will start raising mortgage rates, as they did during the early part of this year. Following today’s events, it is likely that the Bank of England will reduce interest rates in the UK quicker than previously expected. It is thought the Bank could slash the official cost of borrowing as early as October, although it remains more likely that it will wait until November.

Falling interest rates would be good news for homeowners with variable rate mortgages - providing lenders pass on the cuts.

Q: What impact could Lehman Brothers have on investments?

A: Stock markets around the world are falling after Lehman Brothers sought bankruptcy protection and Merrill Lynch secured a $50 billion takeover by Bank of America.

Banks have been particularly badly affected. HBOS, which owns Halifax and Bank of Scotland, was the hardest hit, with its shares down as much as 35 per cent at one point but Royal Bank of Scotland and Barclays were also affected. They all invested heavily in the US sub-prime mortgage market and may now be forced into further writedowns of the value of those assets as the full impact of Lehman’s bankruptcy becomes clear.

If you own bank shares you should probably be prepared for further falls, although some analysts think this could be the beginning of the end of the credit crunch.

Mike Lenhoff of Brewin Dolphin, a stockbroker, said: “A test of the mid-July lows reached by the major equity markets is likely. However, on the view that restructuring helps sow the seeds of recovery from recession, another sell-off is also likely to provide yet another long term buying opportunity.

Q: What about pensions?

A: Today's share price drop has wiped £8 billion off the value of the UK’s 200 largest defined benefit schemes - the fifth biggest fall this year. The latest drop means they face a collective funding shortfall of £34 billion, compared with £26 billion at the end of Friday. This is likely to contribute to the closure of more final salary schemes.

Q: Are any UK products directly affected by the Lehman collapse?

A: Arc Capital & Income has been offering structured products backed by Lehman. These rank alongside bondholders in terms of their call on Lehman’s assets – in other words, they would get their money back before shareholders.

Arc said in a statement on Friday, before the collapse: “The more pressing issue is for those products that have a shorter life, or that make regular payments such as income which potentially could not be satisfied in the short term, though once sufficient funds can be raised the original capital and any outstanding income would be met.”

Q: Will savers be affected in any way?

A: Savers could be one of the few winners. Banks are likely to continue to be cautious about lending money to each other and decreasing liquidity in the wholesale money markets.

As a result, mortgage lenders will be more reliant on using money from savers to fund their lending. This reliance means high rates on offer to savers are unlikely to disappear any time soon, with banks and building societies coming under increasing pressure to get savers’ money through their door.

Q: Could a British bank go bust?

A: Analysts are not ruling it out, but they say it is unlikely. Lenhoff said: “We had the chief executive of a major UK bank into our offices last week and his view was that the worst is over, at least for his business. UK banks have already written down an awful lot, so we think a bankruptcy here is unlikely.”

Q: What protection would I have if a UK company went bankrupt?

A: The Financial Services Compensation Scheme (FSCS) would step in to protect your savings and investments, up to certain limits.

The FSCS would guarantee up to £35,000 of your bank deposits, although the City watchdog is currently consulting on raising this to £50,000.

Investments are covered up to £48,000 - 100 per cent of the first £30,000 and 90 per cent of the next £20,000.

For pensions and insurance-based investment products, such as with-profits, you would get 100 per cent of the first £2,000 and 90 per cent of the remainder of the claim.

Q: My savings and investments are worth more than the compensation limits. What should I do?

A: If you have more than £35,000 with any one bank it might be worth moving the additional money elsewhere for peace of mind.

Bear in mind that if you have savings products with different brands owned by the same company, the £35,000 limit applies. Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance, for example, are all part of the same group and are registered with the FSA under the name of Bank of Scotland.

This issue has been highlighted by the rescue of Derbyshire and Cheshire building societies by Nationwide last week – many savers who have deposits with all three banks have had their protection slashed by the deal.

Q: If a bank faced bankruptcy, would the government step in to guarantee savings as it did with Northern Rock?

A: There are no guarantees. The Lehman bankruptcy shows there is a limit to what the authorities will do. While the US Treasury stepped in to facilitate a rescue of Bear Stearns earlier this year, it has left Lehman to bankruptcy rather than use more public money to prop up the banking sector.