A quarter of all specialist and sub-prime mortgage applicants who were accepted for a home-loan in August 2007 would not be accepted in October 2007, according to ‘sub-prime’ loans company The Mortgage Lender.

David Titmuss, managing director of The Mortgage Lender, said: “A mortgage taken out in August (this year) by a customer in our sector - people who have a poor credit history - will now cost from £60 to £200 a month more.

“Lenders are also tightening up on ‘affordability’, which is calculated from disposable income. With the higher rates, even fewer people will get a mortgage - that is above and beyond the 25% of applicants who already do not meet lending criteria.

“We believe that the potential impact upon the economy may be considerably more than most commentators have stated. Firstly, more and more people will go into debt management and IVA. There will certainly be even more home repossessions, and the overall result will be a fall in house prices as the money to buy them simply contracts.”