Last month we ran a piece about CDOs and speculated about the possibility of a credit crunch and the impact that one might have on the UK mortgage market. Well the crunch came rather quicker than one might have expected and also demonstrated the global nature of credit markets. As predicted UK lenders are becoming more risk averse with those active in the sub-prime sector pulling products and tightening up on lending criteria. Mainstream lenders who rely on raising liquidity through the money markets are finding that their costs are going up and will seek to pass these on to borrowers. Meanwhile, the Council of Mortgage Lenders has reported yet another record month for loans and at the same time asserted that UK lenders are more prudent than their US counterparts were. To some this may sound conceited. Remember the Money Programme report in Feb 2004 that showed on camera people being encouraged to lie about their incomes on mortgage applications? As we have said before it is the availability of cheap credit that has been driving the housing market and if the plug is pulled then we are in for a bumpy ride.