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The Council of Mortgage Lenders' forecasts show housing transactions falling to around 770,000 this year, compared with a normal average of 1.2m to 1.3m. Worse than the 1990s. And Nationwide has announced the largest fall in house prices since 1991.

We all know the reasons, the credit crunch and the scarcity of home loans, particularly for first-time buyers without a substantial deposit and people with patchy credit histories.

On top of that, homeowners who do not need to sell are unwilling to accept their property is worth less than they thought and stay put. There are fewer buyers, fewer sellers, fewer properties available and those that do change hands go for lower prices.

It is a vicious circle and until this state of mind changes things will not pick up. It also increases the likelihood a lender will not get its money back if a home is possessed.

Arrears are rising in the sub-prime market, Standard & Poor's announced last week. One in five sub-prime customers has missed at least one mortgage payment this year.

For the moment, there is little evidence of this spreading into prime. But economic prospects are not looking rosy. Inflation, personal and governmental debt, food, oil and other commodities are all following a relentlessly upward path.

This may lead to recession, at least in industries that rely on disposable income, like retail, leisure and holidays, as the high cost of essentials forces people to cut back on discretionary spending. Unemployment will rise. This in turn will put pressure on prime lending too.

But the sticky property market does mean selling a possessed property at a price that comes close to covering the debt, if at all, may prove tough and this will probably get worse over time.

As conditions deteriorate, lenders face a tricky dilemma and need risk management processes to reflect this while remembering their duty to treat customers fairly.

Is it kinder to be cruel and repossess quickly, to sell while there is still some life in the market, minimise customers' net loss and let them rebuild their finances?

Or should they cut borrowers' monthly payments so they can stay in their homes, even though they will inevitably rack up more debt that will remain with them even after possession and sale?

Tim Fletcher is sales and marketing director of Baseline Capital