The credit crunch has made its biggest cull yet, Lehman Brothers files for insolvency in the US and administration in the UK.

News that one of the oldest investment banks has gone under, hit Wall Street and The City of London like a lead balloon. Financial markets around the globe responded by nose-diving 200 points.

It is widely thought that sub prime lending was ultimately responsible for Lehman Brothers collapse. With nearly 16 decades behind them, the markets took note that the credit crunch is in full flow.

Lehman Brothers has a global wage bill believed to be around £42 million pounds, which the administrators say may not be paid in full. Scenes of distraught workers leaving Wall Street HQ and Canary Wharf in London has shown the gut wrenching effects such a cull has on its employees.

With yet another casualty of the credit crunch, how will the UK mortgage market respond and what does this mean to UK home owners? In our opinion, it’s time to tighten your belt and prepare for the worse.

When banks stop lending to one another then things are not looking good. Barclays Bank was one of the suitors who assessed Lehman Brothers for take over. Once it became clear, they would have to guarantee all outstanding trades the take over was quickly scuppered.

Today Barclays Bank is juggling for position to buy elements of Lehman Brothers although it is said, ‘any purchase must benefit Barclays shareholders’. It is clear no financial institution is willing to increase their liabilities at this time.

In UK mortgage terms, this translates to banks reducing their credit liabilities making mortgages harder to obtain. If buyers cannot obtain a mortgage how do sellers sell? In this market cash property buyers are increasingly sought.

Those holding property hoping things will improve are in for a long wait. In the US reports of a collapse similar to the 1920s is feared. With AIG the insurance giant requesting a bridging loan and Merrill Lynch sold for 28bn it would appear that the major players that are the foundation of the money markets are all in turmoil.

When the money markets have no confidence then you can be sure internal policies change and mortgage lending will cease to be competitive.