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As the crunch goes on, lenders are rejecting applications - and mysteriously dragging their feet over some sub-prime loans.

Banks and building societies are set to tighten their belts further in the wake of the global credit crunch, making it increasingly difficult for borrowers to be approved for mortgages, loans and credit cards.

A series of reports last week suggest that financial institutions will feel the squeeze on their balance sheets well into next year - a squeeze more prolonged and more damaging than had previously been thought.

Over the past month, mortgage lenders have withdrawn 40 per cent of their sub-prime mortgages - loans made to borrowers with poor credit histories - and 16 per cent of their standard home loans.

Many of those standard loans were aimed primarily at first-time buyers who were stretching their finances to afford a home.