Borrowers are close to the eye of a perfect storm with debt markets at the moment.

For a long time now the mortgage squeeze has increased the cost of borrowing money. These costs have already been passed onto the borrower.

Now the threat of an inflation explosion has forced central banks to increase official rate, dealing yet another blow to mortgagees. Earlier today the European Central Bank (ECB) had increased the official rate from four per cent to 4.25 per cent, after an inflation figure revealed this week of four per cent basically forced the central bank’s hand.

But it is not just the current inflation rate the concerns the European bank as higher costs are expected to keep upward pressure on the inflation rate for some time yet.

Finally inflation has been given the respect it deserves, and while many argue that rising interest rates will not lower inflation, it is a fundamental principle that taking money out of the economy will cool demand, even for oil, and this in turn will help to rein in inflation.

There is no denying it that this is a perfect storm for homeowners as more and more struggle with their budget. If this trend continues for the rest of the year expect the number of defaults on mortgages to rise substantially.

If there is any clear sky it is for the savers. With the higher cost of money, people with savings are able to find rewards with high interest term deposits and savings accounts.

A leading property group released figured yesterday showing a rise in the number of mortgage applications in April.

Council of Mortgage Lenders (CML) claimed that close to 57,000 loans were approved in April a rise of nine per cent from the previous month and the highest figure since December 2007.

This figure might be a sign of a turnaround or it could just be a reprieve for a market that has been in a steep decline for most of the year.

It seems that as soon as talk turns to more positive economic news, more data is release showing the economy is a long way from getting out of trouble.

CML has indicated that there would probably be further hurt before any real growth was established.

“Monthly house purchase lending volumes continue to be lower than levels and there will be a further weakening in coming months as recent approvals data has shown,” CML director general Michael Coogan said.

Borrowers are confident that increasing inflationary pressure will force the Bank of England to raise interest rates so borrowers are trying to lock in a fixed rate.

Higher interest rates mean cheaper houses; better a lower principle than a lower interest rate.

Now might just be the time for first homebuyers to wait because further falls in housing prices will put buyers in a better position even with a higher interest rate. But if you are already in the property market, then refinancing is definitely an option worth considering.

A fall in house prices could see potential first-home buyers finally able to get a foot in the door.

According to housing analysts Hometrack, a quarter of young working households in the UK are unable to afford to enter the property market.

The worst affected areas are London and the South West with both have around 40 per cent of young working households unable to afford to enter the property market.

However, there is light at the end of the tunnel with Hometrack revealing that the expected drop in housing prices is allowing some of these young working families to get off the rent cycle.

Hometrack director of research Richard Donnell said until such time as mortgage rates start to fall then lower house prices will be the only real driver of improved affordability for first-time buyers.

High interest rates are deterring buyers now, but as prices fall some will dip their toes in the market.

There is a lot of talk about higher interest rates hurting homeowners, but it presents a perfect opportunity to enter the market.

It is better to buy with a high interest rate and get a house at a reduced price, rather than when interest rates are low and housing prices are at the premium. That is when borrowers get into trouble.

By having a lower principle you pay substantially less over the life of the loan and month to month repayments are also reduced as interest rates inevitably decline.

Low interest rates are good in the short term but they do go up and this puts strain on budgets.

Britain’s road users have been given a reprieve from a taxation of filling the car at the petrol station.

Chancellor of the Exchequer Alistair Darling announced in his first budget, a six-month delay in implementing the two pence a litre fuel duty.

The fuel duty was scheduled to begin in April, but with crude oil prices near record highs the HM Treasury is trying to alleviate more upward pressure on pump prices.

The delay isn’t the slow death of the duty. In fact the treasury used the budget announcement yesterday to reaffirm its commitment to the proposed duty.

“The planned fuel duty increase of 2 pence per litre in April 2008 will be delayed until 1 October 2008. Main road fuel duty rates will rise by 1.84 pence per litre on 1 April 2009, and will increase by 0.5 pence per litre above inflation on 1 April 2010,” the statement said.

So, how does this affect the consumer?

Fuel and energy costs are a major chunk of a personal budget and it is also the most volatile expense.

The daily price changes can have an adverse impact on a personal budget and can be the difference in how much we save each week.

Increases in fuel prices also have a negative impact on inflation, not only does it increasing the price at the pump but it also raising the cost of food, clothing and other essentials.

Rising inflation also has a negative impact on the money that people can save.

A inflation calculator shows how our day-to-day budgets are affected by inflation and how rising costs can erodes our wealth.

Here’s a nifty little tool to help you keep your finances on track – and it’s free.

The Yorkshire Building Society is offering anyone who wants it a budget planner they can download to their PC or Mac.

According to the Yorkshire, while it’s more sophisticated than other free planners, which generally provide just a financial snapshot, it’s less complicated than most similar paid-for tools.

You personalise it to fit your spending pattern and use it to monitor your income and expenditure.

You don’t have to be a member to access the software, installation takes seconds – and it could prevent any more nasty end-of-the-month financial surprises.

So what are you waiting for?

Just head to www.ybs.co.uk/budgetplanner and press that download button.

I’ve already installed mine!

Apparently we Brits have wasted £169 billion on stuff we don’t need and won’t ever use.

According to Abbey, that ranges from clothes and shoes that never emerge from the wardrobe to china and gadgets that spend their lives in the cupboard.

I’d like to add another category of useless purchase to that list: extended warranties on electrical goods.

We moved into a new house just over a year ago and it came complete with kitchen appliances.

The guarantees have now run out, prompting manufacturer Whirlpool to make the generous offer of another 12 months of cover for a total of just £245.

That’s one offer I think I can refuse, especially since consumer organisation Which? has found that most electrical goods that fail before the end of their expected life do so within the first few months.

If we all thought twice before splashing our cash on daft purchases – whether it’s ill-fitting stilettos or an extended warranty – just think of the all the money we’d save.

Money we could use to clear expensive debts, or that stashed in a tax-free mini cash Isa (individual savings account) could grow into a valuable nest egg.

Britain seems to be caught up in an offset stampede.

Last year 170,000 offset mortgages, worth almost £30 billion, were taken out – an increase of nearly 50 per cent on 2005 – according to the Council of Mortgage Lenders.

I have one myself and think they’re a great idea.

You ‘offset’ your savings – and, if you choose, the money in your current account – against your mortgage debt.

This means you don’t earn any interest on your savings balance, but you don’t pay any on the equivalent amount of mortgage either, slashing the interest you clock up every month.

You can then opt to reduce your monthly repayment accordingly or, if you leave it at the pre-offset level, you can pay off your debt years early, saving thousands of pounds.

If you have a healthy savings balance, are self-employed and need somewhere to park your tax, or are a higher rate taxpayer who does poorly out of ordinary savings accounts, they can be an absolute boon.

But offsets don’t suit everyone, and it does worry me that some people may be signing up without truly understanding the pros and cons.

If you don’t fit one of the categories above, an offset can end up costing you more than a conventional loan.

And for some people, who simply want the freedom to make occasional overpayments to help pay off their loan early, a conventional loan with flexible features might be far more cost effective.

As with any financial decision, the key is to do your homework first – and that includes the maths.

“Time is running out!” screams the flyer from an endowment claims handler that landed on my doormat the other day.

It encourages recipients to get in touch “before it’s too late” if they think they might have been mis-sold a mortgage endowment.

It points out that if your endowment is not going to reach its original target value, you might have a case for claiming compensation.

These things are true.

More than 600,000 people have been compensated because they were mis-sold these mortgage linked investment policies.

And you need to hurry if you want to follow in their footsteps, as many leading policy providers are now enforcing a time limit on claims.

What the firm (which deserves to remain nameless) fails to mention is that a shortfall alone is not grounds for a claim.

And it goes on to urge readers: “Don’t throw your money away.”

Strangely, it doesn’t mention how much it charges for its services, so I visited its website to check.

Turns out it’s a whopping 25 per cent of any cash received – money that’s meant to make up the mortgage shortfall.

If it really means what it says about not throwing money away, it should be giving would-be claimants the advice they really need: make the claim yourself.

It’s not difficult, you’ll be just as likely to succeed – and it won’t cost you a penny.

With the ban on smoking in enclosed public spaces and workplaces coming into force in England on July 1, now might be a good time to stub out the habit once and for all.

It could save your finances as well as your health – and not just because cigarettes went up 11p a packet in the last Budget.

Smokers often don’t realise how much their habit costs them.

Independent financial adviser Jason Hemmings points out: “For someone on the average wage smoking 20 a day, 15 per cent of their disposable income is being spent on their habit.”

Giving up would leave them around £2,000 a year better off, while an individual or household getting through two packs a day could be £4,000 richer.

Over 25 years, that’s £100,000 – enough to pay off the bulk of the typical mortgage.

And if you use that cash to make regular, or even occasional, overpayments, you could be mortgage free years early, saving thousands of pounds in interest in the process.

And while on the subject of the greedy and often incompetent giant service providers who have us at their mercy (see Halifax’s “no more Mr Nice Guy” below) …

The Times reported this morning that back in February British Gas cancelled the direct debit payments of 45,000 of its gas and electricity customers.

You might think the reason we’re hearing about this so long after the event is that British Gas dealt with the problem quietly and efficiently, and then managed to keep a lid on it.

But no. It appears that no one at the power provider realised there was a problem until now.

As a result, customers caught up in the billing fiasco haven’t been charged for the past four months and will have to pay extra – the deficit averages around £300 per household – until British Gas has recouped the £12 million deficit.

Which goes to show that while direct debits might be convenient, they’re not foolproof – so keep a close eye on them.