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I know that the title of this post sounds bad - after all we should all do our bit for the environment and I do care about my own carbon footprint.

There are many environmental benefits to hybrid cars, and we published an article about some of the ways in which the Toyota Prius can reduce motoring costs on MoneyHighStreet.com today. So please don’t think that I’m aganst green cars and all that they can do for our environment. I’m not - far from it.

However even though I am looking to replace our car at the moment, I have decided against the Prius for these reasons:

The cost (monetary) of the hybrid technology creates a car that is over-priced against similar cars. As the Toyota Prius costs just over £20,000 for the top of the range model, you can get a similarly sized and specified Ford, Peugeot, Citroen or Vauxhall for around £18,000. So you are paying approximately £2000 for the hybrid technology.

I wonder about the cost (environmental) of the additional electrical motor and electronics that are needed for the hybrid technology. The overall environmental impact of the materials required must be greater for a hybrid car than one with a conventional motor.

The last point is that I think it is better to wait until the next generation of diesel engines are available. The Volkswagen Polo BlueMotion, which is currently available, has CO2 emmissions of 104 g/Km, which are the same as the Prius. Very soon we will see more manufacturers releasing cars with CO2 emissions below 100 g/Km.

So there is a price to pay for being an early adopter of the hybrid cars and it’s one that at this point in time I don’t want to pay. I will buy a diesel car for the environmental and cost benefits that brings, but even though I think the Prius is extremely impressive, and leads the way for the future.

If I lived in London and could save the £8 a day congestion charge, it would be a different matter, but for now, the Toyota Prius is not for me.

Changes are afoot in the loans industry at the moment. The credit crunch and recent difficulties experienced by Northern Rock is starting to have an effect.

I’m hearing rumours that two lenders are withdrawing from the loans market altogther. I can’t say which ones at the moment as I’m not sure if they have announced the situation. Both are “off balance sheet” which means that they work in the same way as Northern Rock - they borrow money at one rate and then lend it at a higher rate.

We’ve seen the impact that this business model has on Northern Rock (whose shares are still in the doldrums). The financial institutions behind these two lenders are US based and have sustained heavy losses in the credit crisis.

So two mainly sub prime lenders are exiting from the UK loans market.

But that isn’t all. Mortgages PLC are not going to lend to “heavy adverse” applicants any more and are reducing the acceptable loan to values of their other sub prime mortgage products. Even their near prime and self certification mortgages will have their maximum LTV’s reduced from 90 percent to 85 percent.

I mentioned a few days ago that the Northern Rock crisis will affect many more people than just its customers.

We’re seeing the start of a tightening of lending criteria. Those with impaired credit histories are going to find it harder to borrow and are going to have to borrow less.

The news that Abbey is considering providing 100 percent mortgages again got me thinking about how sensible they are at the moment.

The Abbey know what they are doing and take a sensible approach to lending but I personally wouldn’t feel confident in taking out a 100 percent mortgage in the current house market.

After all if you have a 100 percent loan to value then you are in negative equity from the start, when you include all the other costs of buying a home.

I recognise that it is very difficult for young people to get on the housing ladder and 100% mortgages are often the only way to achieve that vital first home. However I wouldn’t take one for these reasons:

• To move into positive equity in your home, you need house prices to increase. As I said yesterday, house prices during 2008 will probably plateau.
• Predictions for the property market in the future are no longer as buoyant as they have been as houses are now so unaffordable.
• It is too early to predict what the impact of home information packs (HIPs) will be on the property market.
• The rates of 100 percent mortgages may increase to offset the greater risks to the lenders, particularly following the recent credit crunch problems.

To those desperate to own their own home, this is not good news, however it must be sensible to rent for a while, building up a 10% deposit in a high interest savings account.

Whatever happens to the property market, it is unlikely that house prices will increase faster than your ability to save a deposit, as has happened during the last few years.

The Royal Institution of Surveyors (RICS) is predicting that house prices will be flat in 2008 and there is a ten percent chance of them suffering a 1990’s style crash.

It is the effect of recent interest rates rises that will subdue the property market, rather than the recent turmoil in the banking industry, according to RICS. However should the credit crisis extend into next year, then house prices could be hit more than is currently being predicted.

For all those buy to let investors looking for capital growth as their main means of earning from their property investments, this is bad news. Mortgage rates will probably remain high for quite a few months and rental incomes are unlikely to increase significantly, particularly if house prices become more affordable.

Even Alan Greenspan, the much admired former chairman of the Federal Reserve in the the United States, is predicting trouble in the UK housing market. This is because so many home owners in the UK have variable rate mortgages and are vulnerable to increased interest rates.

So if you are looking to invest in property at the moment, everything is pointing to keeping your cash in a high earning deposit account instead, unless you can negotiate a stunning deal in a quieter property market.

Let’s celebrate some good financial news today as inflation has fallen slightly to 1.8 percent. As that is below the governments self imposed threshold of 2 percent, it is safe to assume that interest rates will not rise for the foreseeable future.

In fact the next move for interest rates may well be downwards, though I can’t see this happening for several months, unless we experience a worsening of the credit crunch problems.

While I am feeling buoyant, I’ll mention that shares in Northern Rock and other vulnerable banks such as Alliance and Leicester have bounced back today in response to the move by the government to guarantee the deposited funds in Northern Rock.

As I said in my previous post, it would probably have been a blood bath in the banking industry today without the new Bank of England’s funding guarantees.

But those renewing their fixed rate mortgages still have some difficult choices to make. With fixed rate mortgages becoming cheaper, but discounted rates becoming more expensive, now is the time to navigate through this confusing situation to secure the best possible deals before any more turmoil descends on the finance markets.

I wonder if the the news that the government is willing to guarantee all the deposits at Northern Rock is about helping the stricken bank out or about stopping the rot spreading throughout the UK banking system.

With shares in Alliance and Leicester being badly hit in the last half hour of trading - they slumped 31 percent today - there must be concern in government circles that that bank could be next in line for a crisis of confidence and a mass withdrawal of funds.

So in the few hours after trading today, the Bank of England has acted to guarantee that all monies deposited at Northern Rock will be completely safe. Presumably they were dreading the impact on the banking system tomorrow if they failed to act today.

Two banks collapsing would be horrific for the financial system, in which confidence and stability underpin most activities.

Whilst I think that the government has made some terrible mistakes in recent months - and Gordon Brown cannot shed the blame for this - at least there is now an unprecedented guarantee in place. Lets hope that this stops the current crisis of confidence in the banking system turning into an unparalleled disaster.

“Your money is safe” says Adam Applegarth, the Chief Executive of Northern Rock, but with people queuing for hours out side Northern Rock branches, desperate to withdraw their savings, what he says and what his customers fear, are worlds apart.

One person I saw interviewed on the TV news just now had been trying to log in to her Northern Rock account for four days. She gave up and travelled 50 miles to her nearest branch to rescue her savings. With confidence in Northern Rock draining away as fast as the bank’s deposited funds, it is no wonder that its customers will go to great lengths to withdraw their savings as fast as they can.

If I had savings with Northern Rock, you would find me queuing outside one of their branches too.

So should we all be concerned about what is happening to Northern Rock?

Northern Rock is not one of the biggest banks, and is mainly just a lender or mortgages and personal loans. However it now supplies 9 percent of all mortgages in the UK so if it fails almost ten percent of all home owners in the UK will be affected in some form. That is a lot of people.

Other banks are being affected too - the Alliance and Leicester share price is down 16 percent today, for example. But its not just the banks who are seeing investors head for the hills - Barratt developments has lost almost 7 percent of its share price today too.

And that is the problem, or at least one of them.

Other banks, particularly those with a heavy exposure to the mortgage market are not immune to the problems that Northern Rock has experienced and could be next in line for a crisis of customer confidence. This is why the Alliance and Leicester shares are suffering so much.

Another bank sharing the fate of Northern Rock would have huge ramifications for the whole banking system in the UK.

So why the fall in the shares of Barratts, the house builder?

Well we are seeing mortgages rise already, but as I’ve said before, the sub prime market is going to find it harder and more expensive to arrange mortgages in the future. There can be no doubt about that.

Less availability of mortgages means less demand for houses and therefore a potential threat to the housing market.

We’ve published more about how the Northern Rock problems could affect you on MoneyHighStreet today. It is a fact that even if you haven’t got savings or a mortgage with Northern Rock, recent events will affect us all as widespread changes in lending practises are inevitable.

Confidence is starting to become a scarce commodity with Northern Rock customers today. Fearing the worst, many people have been queuing outside branches to withdraw their money from the ailing bank.

Apparently so many customers were logging into their accounts on Northern Rock’s web site this morning, that it couldn’t handle all the traffic.

Confidence in Northern Rock is also in short supply with City investors too. Northern Rock’s share price is currently down 25 percent.

As Chancellor Alistair Darling said this morning, Northern Rock is basically a sound company - though many people are questioning some of their recent decisions and strategies. That is why the Bank of England offered emergency finance yesterday.

However confidence is key and it when it drains away even sound companies can flounder. I wonder if we are seeing the end of Northern Rock as an independent company. With its share price at bargain basement levels, it has to be attractive to predators looking to snap it up.

Confidence, or the lack of it, is making a bad situation worse for Northern Rock.

Northern Rock has had to go cap in hand to the Bank of England on Thursday to loan enough money to meet its lending commitments.

With the credit crunch biting deeper, banks are becoming reluctant to loan to each other, and as Northern Rock specialises in mortgages and loans, rather than traditional banking, it is more exposed than many lenders to the credit squeeze.

Banks just don’t want to risk loaning money to Northern Rock so the only place it could go to raise funds is the Bank of England.

No one is saying that Northern Rock will collapse, taking mortgages and saving with it, but it does appear to be suffering more than other banks during this credit crisis. Even though it acted to regain stability by raising its interest rates on sub prime mortgages recently, borrowing emergency funds from the Bank of England will not enhance its reputation.

Northern Rock seems to be a victim of this credit crisis and we can expect it to become vulnerable to take over or merger activity. It’s share price tumbled on the stock exchange on Thursday as news of its recent troubles circulated through the City.

Meanwhile there is no respite for the home owner as mortgage woes seem to be getting worse. Mortgages PLC have joined a growing number of lenders in raising interest rates on their mortgage products.

I’ve long thought that the British Gas service care products, which provide breakdown cover for domestic central heating, plumbing and electrical systems, have been excellent value for money.

Earlier this year, our boiler started leaking and then broke down. One call to British Gas and they arrived later that day to try and fix it. Unfortunately for British Gas, the boiler required parts and labour costing £900 to get it running again. We weren’t charged a penny for this - it was all covered by our £19.75 per month service charge.

Of course boilers don’t break down like this every year - or at least I hope they don’t - however as our complete central heating system and drains are covered by this service charge, I’ve always felt that it is superb value for money.

I might be changing my mind now though.

I have just received a notification from British Gas that the monthly costs of their HomeCare 400 package (which also includes cover for all the electrics in the house) is increasing from £23.75 to £28.15 per month. This is a rise of £4.40 per month (£52.80 per year).

So now the British Gas HomeCare 400 package will cost £337.80 per year. That is starting to feel expensive as you can get a lot of work from a local tradesman for that cost, and only when you need it, as opposed to paying regardless.

There are other providers of home breakdown cover. Directline offer a similar Home Response 24 service, for example. I haven’t asked them for a quote yet, so I don’t know what they charge, but it might be worth finding out.

I’ll stick with the British Gas HomeCare 400 service for a while, but if they raise the costs like this again, then I’ll definitely look elsewhere or even consider taking a chance without maintenance cover - although I wouldn’t take that decision lightly.

British Gas should be careful when making such large price increases. They may start losing valuable long term customers.

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