After a week that saw the world's financial systems teeter on the brink... How bad can it get?

JOB SECURITY

With unemployment currently around 1.72 million – its worst level for a decade – and predicted to rise to around two million by 2009, people are understandably fearful about the future.

Many jobs have already gone in the construction and financial sectors, with more lay-offs anticipated. And manufacturing is expected to be next as cash-strapped consumers cut down on bigger purchases, and the recession in parts of Europe hits exports.

Ian Brinkley, associate director with the think tank The Work Foundation, says much will depend on employers’ attitudes: “If employers believe the economic slowdown isn’t going to last long, they won’t want to lay off skilled workers because they know it will be costly to re-recruit later on. But if they believe the economy has effectively stalled then they might start making people redundant.”

HOUSE PRICES

Until recently, Scotland appeared to be bucking the UK trend with house prices continuing to rise, but figures released last week revealed a drop of 7.1% in the past 12 months.

This is only really bad news for those who had hoped to downsize and bank their profit. Those looking to trade up will be better off as the cut in the price their own house fetches will be more than offset by the cut in the price of the one they’re going to buy.

Mark Hordern, marketing manager for Glasgow Solicitors Property Centre, says those who want to buy should strike now while there are still plenty of properties on the market, because the supply is likely to dry up as more cautious sellers decide to hang on and see what happens in the medium to long-term.

What will happen very much depends on how quickly the markets recover. If unemployment doesn’t rise too sharply and the economy begins to pick up again in mid-to-late 2009, analysts believe house prices will continue to dip slightly in Scotland, and the greatest evidence of the slowdown will be in a reduction in the number of transactions.

However, if unemployment rises sharply then many people will have no choice but to sell. Prices will fall more sharply and the number of repossessions will rise.

It is clear that the construction of new houses – which has already dropped – will fall below the target of 35,000 a year by 2015 set by the Scottish Government. One possibility – mooted by the Centre for Economic and Business Research – is that, when the housing market does start to move, there will be a shortage of properties and prices will rise sharply.

However, Hordern believes a likelier scenario is that it will take until late 2010 for consumer confidence to be restored.

SAVERS

Naturally, the crises at HBOS, Northern Rock and Bradford & Bingley have led savers to worry that their nest eggs will fall victim to the credit crunch.

In fact, those with savings of less than £50,000 are already protected by the Financial Services Compensation Scheme (the Government is raising the sum from £35,000). Those with more than £50,000 are advised to split it into smaller sums and invest it in different banks or building societies so each sum has its own protection.

It is important, though, to check the financial institutions you choose are not linked as a result of a merger or takeover as this may mean they count as a single entity. Websites, including www.thisismoney.co.uk, have charts showing which companies share the same licence.

On the upside, banks and building societies are so keen to attract new investors, there are good deals around. “If you don’t need to access your cash, you might be able to get 7% interest, but even if you do, you shouldn’t be accepting less than 6%,” said Michelle Slade of moneyfacts.co.uk. Also, there are those who believe shares are still a good bet for long-term investors. “What was the world’s richest man Warren Buffet doing while the US bailout was being discussed?” asks Alan Steel, of Livingston-based Alan Steel Asset Management. “He was buying billions of dollars worth of shares.”

MORTGAGES

Of all those affected by the credit crunch, homeowners have been hardest hit. Since the economic downturn began, 10% of the mortgage market has disappeared, rates have risen and the number of products on offer has been slashed. Where once providers were handing out high loan-to-value mortgages like sweeties, they are now effectively ruling out anyone without a substantial deposit or equity in an existing property by making the loans prohibitively expensive.

The other big change is that lenders have started to pay more attention to credit ratings, with even minor transgressions likely to scupper your chances of a good deal. So it is very important to make sure you manage your finances properly.

For first-time buyers looking for a mortgage the key is savings. No banks are now offering 100% mortgages, and the larger the deposit, the better the deal, with Lloyds TSB reserving its best offers for those looking for a mortgage of 60% or less.

Those who are looking to remortgage but have less than 10% equity in their property may find the high fees being levied will make it cheaper for them to pay the standard variable rate with their existing lender. But the good news for the rest (and in Scotland that’s still most people) is that many providers – including the Nationwide – are offering better deals to those who are looking to remortgage because they regard such customers as less of a risk.

PENSIONS

It is true that falling share prices and the collapse of the property market have hit pension funds hard, but it is important to keep this in perspective. In Scotland, a large number of people work for the public sector so their pension is guaranteed. Workers in the private sector who joined a final salary pension scheme will also be largely untouched by the crisis.

People with personal pensions who are nearing retirement age are at risk of suffering heavy losses, but even then it depends how wisely they have invested. “If they have moved their money from stock and shares to gilts and cash as they got older then they should not be too badly affected,” says Richard Eagling, editor of Investment Life and Pension for Moneyfacts.co.uk.

Those whose money is still tied up in high-risk equities will have seen their funds shrink, but it’s too late for them to do anything about it. Putting their cash into gilts and bonds now would simply confirm their losses.

Advisers say a better move for them would be to put their retirement on hold for a year, or take a small portion of their tax-free cash allowance to use as income the next 12 months, in the hopes the markets will make a speedy recovery. If you are still a decade or more away from retirement, the advice is also to sit tight, although Eagling recommends diversifying your investments to spread the risk.

This is particularly true for those with self-invested personal pensions.

“If you have some money in property, some in gold and some in shares, then hopefully, no matter what the economic conditions, something will be performing well,” Eagling said.

SHOPPING

Food prices have soared over the past nine months, with the cost of meat and fish going up by more than a fifth since January. According to a survey by retail analysts Verdict Research, the cost of a typical trolley-load of shopping has risen by 8.3%, but some items, including chicken breasts and croissants, have increased by more than 40%.

The dramatic rise is already having an impact on consumer spending habits, with discount stores such as Lidl and Aldi taking custom from the likes of Sainsbury’s, Tesco and Asda, and 41% of shoppers switching to cheaper brands.

“It is clear shoppers are feeling the pinch and beginning to trade down when buying food,” says Richard Perks, director of retail research at Mintel.

Saying that, bigger supermarkets have started cutting prices in an attempt to hold on to their customers. Last week Asda was advertising whole chickens for just £2 and savings of more than 30% on eggs and bread, while Tesco reduced the price of a bumper pack of nappies to £7 – a cut of 41%.