James Saft is a Reuters columnist. The opinions expressed are his own.

Even in the good times, many British consumers were borrowing against their houses just to fund routine consumption, indicating a big hit to come for retail sales and for the banks who hold the loans.

With house prices falling rapidly and mortgage debt tougher to get, it is no surprise that homeowners are less able and inclined to borrow against their houses in order to spend.

That will be hitting the High Street now - analysts are expecting a 0.6 percent fall on the month in retail sales for November when data are released later this week. But a rise in unemployment next year could expose a really serious weakness in household finances, as consumers who counted on being able to extract wealth from their houses to smooth consumption in bad times find that, when bad times come, the wealth isn't there and the banks don't want to lend anyway.

Researchers at Durham University looking at survey data found that 37 percent of homeowners borrowed against their house between 2002 and 2005, typically realising about 6,000 pounds. That's a lot people borrowing a lot of money against very illiquid and now hard to realise assets.

Even more interesting is the pattern of what householders were doing with the money and what was happening to them when they decided to borrow. Over time the proportion of people borrowing to re-invest in their houses through improvements fell, while more was finding its way into day-to-day costs, according to Susan J. Smith, a professor at Durham and one of the authors of the study.

This was borne out by a high percentage of equity borrowers who had lost their jobs, become pregnant or had a child in the year they borrowed.

How exactly a borrower who has lost his job gets a bigger mortgage is a puzzle, but one that evidently banks and borrowers in Britain together have somehow managed to solve. The record in the United States shows that the housing boom brought with it a tremendous amount of mortgage fraud, much of it abetted by people within the lending industry.

In short, it seems that even during boom times in Britain people weren't borrowing against their houses simply to buy BMWs and fund vacations, but often to keep their households ticking over during tough times.

"The rising property market was central to encouraging people to borrow more for non housing expenditure," said Ross Walker, economist at Royal Bank of Scotland in London.  "And with the housing market now in reverse you would expect to see a retrenchment. It reinforces the potential fault line for the UK household sector: there is a big debt exposure and the real test will come next year as unemployment rises."

BORROW NOW, DEFAULT LATER
The housing safety net, such as it was, simply won't be there next year when unemployment vaults higher, which is very likely to exacerbate a spending slowdown which itself will feed unemployment. And remember, these weren't people who were defaulting on their house loans in order to be able to pay their grocery bills, but people who were in part paying their grocery bills because they could borrow against their houses.

I wouldn't want to be the bank that made those loans, or the government that insures that bank. It also goes some way, in my view, towards explaining the very precipitous fall in the pound, which is down more than 30 percent on a trade-weighted basis this year.

According to a survey of households just released by the Bank of England, credit is much harder to get as compared with a year ago. A total of 16 percent of households said they had put off spending because they were concerned about access to credit, up by a quarter from a year ago.

Only six percent of mortgage borrowers said they had taken out an additional secured loan, compared with 10 percent last year and 14 percent in 2006. Nearly 40 percent took out these loans to pay down other debts. That points to higher credit card losses and delinquencies next year, as unemployment interacts with an inability to access fresh secured loans.

So 2009 looks like it will feature higher unemployment, much reduced consumer spending, impaired access to credit and a default cycle that will worsen the already difficult capital problems of the banking sector. There has been a lot of effort and exhortation to try and keep banks lending to consumers in Britain, presumably on the view that it's best to sober up gradually.

That can only work so long, and if it comes at the expense of capital for businesses that make and sell things, especially overseas, it may in prove to be a mistake.

And while big ticket items like automobiles, which are easy to defer, are now suffering, next year may see very tough times on the British high street for more basic items.

(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund.)

(UPDATED Dec 18 - This post is now closed for questions)

Conservative Party leader David Cameron will be speaking on the economy and the credit crunch at Thomson Reuters' Canary Wharf office on Monday, followed by a question and answer session.

The Tory leader has argued that two main problems face Britain at present – a recession coupled with a record level of government debt, and that the government is trying to tackle one while ignoring the other.

"Every week this government is in power the mortgaging of the future gets greater. Every week the debt gets larger. Every week the burdens on our children mount up higher,” Cameron has said. He has accused Gordon Brown of "economic crimes" saying the Prime Minister “has brought this country to the brink of bankruptcy and the worst recession in the G7."

Here is your chance to put your questions to the man credited with making the Conservative Party electable again. We will be putting questions from our Web readers to Cameron at the event.

For full coverage of the event, including a live Web cast from 1000 GMT on Monday, see our David Cameron Newsmaker page.

Readers who use the Twitter micro-blogging service can also use the tag #askDC and we will monitor all the responses.

A day after Britain unveiled a multi-billion-pound fiscal stimulus package to spend its way out of recession, market analysts have been busy figuring out what it all means, in the context of a sharply slowing economy.

Nick Parsons, head of market strategy at nabCapital, has come to this conclusion:

"People need to spend less, not more, and though little Johnny's Xbox is indeed 4 quid cheaper, his Dad's house is worth £3.97 less every hour,"he wrote in his daily note.

"That’s every hour of every day, 24 hours a day and is not going to get in the slightest bit better as a result of yesterday's budget announcement… Thanks to the VAT reduction, Easter eggs might be 10p cheaper next year but by then average house prices will be another £10,000 cheaper. Go figure."

Prime Minister Gordon Brown has suggested he will push expansionary fiscal policies to help boost the economy. Brown’s comments were the latest in a series from him and Chancellor Alistair Darling stressing the importance of boosting the economy, which shrank in the third quarter of 2008 for the first time in 16 years and is expected to contract more sharply next year.

Bank of England Governor Mervyn King has also put his weight behind “some fiscal stimulus”, just as the Bank predicted in its quarterly inflation report that the economy would shrink sharply next year.

But what is the way forward - tax cuts or higher public spending?

The dividing line between Brown and Tory leader David Cameron is whether to borrow to fund tax cuts. Cameron has argued that Britain’s deficit is too high to allow further borrowing. Brown says Cameron’s claim that he can pay for his tax cut by savings on welfare benefits isn’t realistic.

Tax cutting is a populist measure and it may be tempting for Brown, who no longer appears to be married to fiscal prudence, to go down that road, not least because of the backlash he faced earlier this year over scrapping the 10 percent tax band.

But there are a number of reasons why tax cutting may not result in a boost to the economy: government borrowing gets dangerously high and will limit the economy’s ability to recover swiftly from a recession, and people may decide to save rather than spend any extra money they might have in their pocket due to tax cuts.

What’s your view - do you think increased public spending will stoke demand, are tax cuts the way forward to boost the economy or should the government go for a mix of both?

Duncan Bannatyne, the straight-talking Scottish entrepreneur and star of TV’s “Dragons’ Den” has been talking about how his business has been affected by the credit crunch.

“My businesses are up from last year, so we’re doing well and most small businesses I speak to are still actually doing quite well,” he told Digital Spy in an interview ahead of the launch of his new BBC2 show “Beat the Bank” on Thursday.

“But I have wanted to borrow more money to invest in more health clubs and it’s proving very difficult. Banks want huge amounts of interest, personal commitments and guarantees. I’m in the middle of a deal at the moment, which I’m just weighing up whether to go in or pull out.”

His advice for people struggling in the current economic climate: “I think there’s two options. All those people who can pay their bills should make sure they’re up to date, get rid of as much debt as they can and reduce their spending where they can. However, anyone with a bit of spare cash who’s willing to invest, it’s bargain basement time. You should get out there now and make some investments.”

At the root of the credit crisis was the large number of banks,  the Dragons’ Den star says.

“There were just too many banks. Banks were passing money around each other and one day it was always going to run out. If there were as many supermarkets on the high street as there are banks, then we’d run out of fresh vegetables. It was as simple as that. I don’t think anyone could have foreseen it, but I did comment three years ago that there were an awful lot of people about making huge amounts of money from transferring other people’s cash around on commission. It just never seemed right to me.”

In “Beat the Bank”, Bannatyne takes a young couple from the general public and asks them if they want to leave their money in the bank or take a risk with it.  He introduces them to experts: one in antiques, one in art, one in wine. These experts claim that if you give them £10,000, you can get a much better rate than from a bank. ” I remind the couple that there are risks involved and it’s left for them to decide what to do,” said Bannatyne.

It’s every houseowner’s worst nightmare - and it’s official now: more than a million households could fall into negative equity if the housing slump continues, the Bank of England said today.

Growing numbers of home owners could be forced to sell their properties at a loss, as the property downturn gathers pace and vendors run out of options.

The scope of the negative equity nightmare could be massive. The BoE said that a 15 percent drop in prices from their October 2007 peak would leave one in 10 homeowners with outstanding mortgage debt worth more than the value of their home. Earlier this week the Centre for Economics and Business research predicted  that the average cost of a UK home will fall up to 40,000 pounds by the end of 2009.

First-time buyers are among those hardest hit and buy-to-let landlords may fall behind on mortgage payments or may be forced to sell at a loss as lending dries up.

And if that’s not gloomy enough - two further sets of figures provided more bleak news for the housing market on Tuesday.

The Financial Services Authority said the number of home repossessions in the second quarter rose to 11,054 from 9,172 in the previous three months. And according to the Land Registry, the average price of a house in September was 168,814 pounds, down another 2.2 percent on the month, a far cry from around  200,000 pounds seen at the peak last summer.

How have you been affected by the downturn in the housing market? Have you even been affected by negative equity, either now or in the past?

Sorry seems to be the hardest word in many walks of life - but for hard-nosed bosses  of financial institutions it seems to be even tougher, even during the credit crunch.

A recent notable exception was Richard Fuld, CEO of collapsed Lehman Brothers, who told U.S. lawmakers earlier this month he took full responsibility for his actions and felt “horrible about what has happened to the company,” but insisted he shared the blame with regulators and Congress.

Maybe actual apologies are thin on the ground because our world has become so complex that there is never one single person responsible for the collapse of a bank or  the failure of a company.

Do you think an apology can make a difference? And who should apologise - the bosses, the regulators or all those who promised that investing in the stockmarket would return pots of gold for investors?

Here are just a few of the memorable quotes to emerge from the credit crisis:

If you would like to contribute please send us your own selection in the comments box below, with a link to where you found the quotes.

PRAISE FROM THIS YEAR’S NOBEL ECONOMIC PRIZE WINNER

“The British government went straight to the heart of the problem and moved to address it with stunning speed. Has Gordon Brown saved the world financial system?” – Paul Krugman.

IT TAKES A CRISIS

“Sometimes it does take a crisis for people to agree that what is obvious and should have been done years ago can no longer be postponed”  — Gordon Brown speaking at a Reuters Newsmaker event after announcing the government would put 37 billion pounds of new capital into High Street banks.

LEADERSHIP AT LAST

“I would expect the market will turn around because people have been looking for some leadership and they are finally getting it” - Financier George Soros on the bank rescue package.

LOCAL COUNCILS

“There is no evidence of recklessness by local authorites,” - statement by the British government and the Local Government Association after it was revealed councils had invested some 840 million pounds with Icelandic banks.

PULLING THE CART ALONG

“They’re doing what they can. But it’s like a donkey in the field: you give it lots of carrots but it doesn’t mean it will pull the cart along,” said the head of the rates trading desk at a large bank in London after money markets ignored central bank coordinated rate cuts last Wednesday.

A NEW ERA

“We have now entered a new era for global banking. In return for taxpayers’ money, the state will gain a level of control over their governance, pay, and lending practices,” said Paul Niven, head of asset allocation at fund manager F&C, after Chancellor Alistair Darling first announced a 50 billion pound rescue package for British banks.

NO TIME FOR MORAL HAZARD

“Moral hazard is a concept that nobody can afford when markets are going down at this rate,” Emanuelle Ravano, managing director at Pimco Europe, the world’s biggest fixed income asset investors, said after last week’s co-ordinated rate cuts.

CAPITULATION SELLING

“This strikes me as raw fear, ” said Michael Farr, president of Farr, Miller & Washington after the Dow plunged last Thursday as investors fretted about a global recession. “This strikes me as capitulation selling. You have to clear the sell orders.”

TOO MUCH INFORMATION?

“Investing has become a spectator sport and the daily amount of commentary is unsettling investors, ” said Thomas Russo, partner at Gardner Russo Gardner. “It’s a self-feeding frenzy — you go to sleep and hear Japan is down, you wake up and hear Europe is down then you come in to work and markets here are down. It will go on until values are compelling.”

SHOCK AND AWE

“I guess it’s a shock and awe type move with respect to easing liquidity and improving the current climate,” said Peter Bookvar, equity strategist at Miller Tabak & Co, on the co-ordinated interest rates moves.

NO  RESCUE FOR SOME

“Until the day they put me in the ground I will wonder,” Richard Fuld, the disgraced head of Lehman Brothers, told the U.S. Congress in his first public comments since Lehman filed for bankruptcy protection. “I do not know why we were the only one” that was not rescued.

• You know exactly what the population of Iceland is and can also pronounce the name of its prime minister.
• Even the word ‘crisis’ seems to have lost its currency.
• Countries pop up for sale on eBay for 99p and get few offers.
• Posters on BBC messageboards stop discussing the undulating pitch of Robert Peston’s voice and listen to what he’s actually saying.
• The speech bubble on Page 3 of the Sun is given over to discussing the credit crisis.
• Financial market updates displace stories about Jade Goody on the tabloid front pages.
• Bad news stories from government departments are rushed out day after day and not even the Opposition seems to notice.
• Estate agents finally admit house prices have fallen but tell you now is a really great time to buy because the market is stabilising.
• People marketing get-rich-quick property seminars don’t get taken seriously any more.
• The Chancellor, writing in the Financial Times, says that “now, more than ever, we need new ideas”.
• Your primary school-aged children know that credit crunch is not a type of biscuit and that IMF isn’t just a fictional organisation in Mission Impossible.
• You go for a while without noticing one estate agent’s mini and then you see a whole bunch of them on the back of a car transporter.
• A pensioner on the evening tube train from Canary Wharf gives up her seat to a banker because she reckons he might need it.
• The Ivy rings to ask if you’d like a table tonight or any night.
• There are no spare trolleys when you turn up at Aldi to do your weekly shop.

Do you have any better suggestions? All contributions welcome - please send in your selection.

So, how to tell in advance which banks and financial institutions were headed towards the door marked ‘exit’?

City analysts like to pore over spreadsheets, corporate accounts and chief executive comments for nuances and clues as to performance.

I prefer to keep things simple. I used to reckon that any FTSE company which had (1) flagpoles outside its HQ; (2) a country-house training centre; and (3) a corporate helicopter was probably in trouble. Nowadays, however, I study lists of winners at industry award shindigs because, almost by tradition, they’re seen as the ‘kiss of death’.

Take Icesave. Its website was, until earlier this week, proudly boasting of its victories in two categories at the Moneyfacts personal finance awards 2008, which judged performance over the previous year.

“Best monthly interest account provider” and “best no-notice internet account provider”. Tough fought categories, no doubt. But I hesitate to suggest that Moneyfacts’ definition of ‘no-notice’ probably wasn’t a reference to the amount of time savers had to withdraw their funds before the bank hit the rocks.

Moneyfacts analyst Michelle Slade says they don’t publish the full judging criteria, to prevent product providers from manipulating the results. And she reckons, with some understatement, that the 2009 Moneyfacts awards will be “interesting”.

“Well, for one thing, providers have to have been there for the full year to qualify for the awards. I think it’s going to be very different next year.”

One industry shindig where the ‘kiss of death’ tag is probably well deserved, though for the organiser rather than the award recipients, is the Bradford & Bingley Personal Finance Media Awards.

Usually held in October, gongs go to personal finance journalists who are deemed to have excelled in the previous year - perhaps this time they’d go to those hacks who predicted the demise of some of the High Street’s great names like, er, Bradford & Bingley?

Chance would be a fine thing, however. It seems that prospects for this year’s awards do, which would have been the 22nd annual bash, are not that great. A B&B spokeswoman is non-committal: “It’s all under review,” she tells me. “There will be a decision in the next couple of days. The awards might not take place in their current format,” she says. No kidding.