Try looking in Hackney, east London - which is one of the places where, according to the Halifax, prices could do best next year. And keep an eye on the auction rooms: repossessions are expected to double to 45,000 next year, which means a lot of property will be disposed of at knock-down prices.

Keep looking, but don’t rush in

Couple, both 28, expecting first child, living in £160,000 three-bedroom house on new estate in Bootle, Liverpool, with £150,000 mortgage

You struggled to get on the housing ladder, and now you are wondering about the wisdom of it. Next June, your two-year, 4.75 per cent fixed rate mortgage comes to an end and you face either having to pay your bank’s standard variable rate of 7 per cent or else stump up at least £1,000 - which you can’t afford - for a new fixed-rate mortgage of about 5.5 per cent. And, worse, your job is looking shaky. As an investment, your home has proved unexciting: its value seemed to go up for a while; now it seems to be coming down.

The bad news is that your type of property is likely to underperform against the rest of the market. According to the information company Experian, Bootle, has the dubious distinction of boasting some of Britain’s most highly-mortgaged streets - one where the average mortgage is worth 99 per cent of the average property. Newly-built estates are a monoculture of highly-mortgaged families who have bought at the top of the market; many of them are now struggling and one or two have already suffered the trauma of repossession.

However, this isn’t just an investment: it is home to your growing family. It will be painful, but you should hang on as best you can. The good news is that interest rates have already come down one notch: further falls are likely, although, with inflation still a danger, far from certain. If you are having trouble, you should contact your lender as soon as possible.

Breathe in, forget the foreign holiday and try to hang on

Buy-to-let investor, 36, with 10 flats in Birmingham worth £1.25m - and a £1m mortgage

“It was Mrs Thatcher who got me my house,” said one former Labour voter, explaining why he was backing the Tories in 1987. By the same token, you are probably going round boasting “it was Mr Blair who got me my portfolio”. Years of low interest rates and slack lending practices have created you an apparent fortune - though you are not a “property millionaire” because of your enormous, and for the moment manageable, mortgage.

With the market faltering, however, you are beginning to worry. Should you stick it out or cash in your chips while the going is good? Until recently, confidence in buy-to-let was at a peak: 90,000 mortgages have been taken out in the past 12 months alone. But this has come in the face of increasing evidence that some investors have already lost huge sums. The worst case so far is that of a two-bedroom waterfront flat sold new in April 2006 for £279,950 - and again as a repossession this June for £140,000.

The trouble is that you have bought too many standardised two-bedroom flats in areas with a huge surplus of such properties - among the worst blackspots being inner cities such as Birmingham, where 72 per cent of newbuild properties are currently flats, and several south-eastern commuter towns such as Colchester. In fact, you’ve only just noticed that some flats are selling for prices below that which you paid.

While your rents are gently rising, you will face problems remortgaging on anything like as favourable terms as you did a couple of years ago - and even now the rents on some of your properties only just cover the mortgage. Ominously, Paragon Mortgages, which has helped fuel the buy-to-let craze and whose share price has plummeted in recent months, withdrew its entire mortgage range on December 19, promising new products in January. You should think of selling a couple of your flats quickly, even if at a loss. Failure to understand how the international credit markets will impact on buy-to-let mortgages could result in a far worse fate: repossession of your entire portfolio and possible bankruptcy. You have to remember that with a £1.25 million portfolio and a mortgage of £1 million, your entire fortune will evaporate should prices fall by 20 per cent.

Crisis? What crisis?

The value of your home has trebled since you struggled to buy it 10 years ago - at what then seemed a huge price. Now, your payments are well under control and you feel under little pressure. It is possible that the market could crash - Citigroup recently predicted that house prices will fall by 10 per cent over the next three years and some expect an even bigger slump. In that case, if you got the timing perfect, you could sell now, rent for a year or two and then upgrade to a house like that nice old rectory along the road which you have long coveted - and have no larger a mortgage than you have already.

Birmingham… has the buy-to-let bubble burst?

On the other hand, it would cause a lot of upheaval and your profit could be wiped out by estate agents’ fees and stamp duty. In any case, family houses are the kind of property least likely to be affected by a slump, thanks to a shortage of them being built - between 2001/02 and 2005/06 the percentage of new properties made up by houses with four or more bedrooms decreased from 39 per cent to 22 per cent.

Stay put and enjoy life

Empty nesters, 55, not interested in moving from Surrey, but with an inheritance of £200,000 to invest

You have been thinking of investing in property for a while, possibly abroad, but you are bewildered by current speculation about the housing market and are now in two minds whether it is a good idea. On the other hand, you have seen your shares slide and have been put off the stock market. If you really want to invest in Britain, you could try Lochgelly, in Fife: according to the Halifax, it has the most undervalued house prices in the country.

Then again, do you want to be managing a residential investment 400 miles away? How about spreading your money around? You could buy some index-linked savings certificates, currently paying 5.65 per cent tax-free, putting some money in an investment trust - which trades at large discounts and gives you exposure to all kinds of investment, property included - and keeping back some cash to pick up cheap property in the event of a crash.

Consider options beyond property

Couple, 70, looking to downsize from large semi in Bromley to bungalow in the Scilly Isles

Your house is worth £500,000; the property you want to buy is £300,000. In other words, you are taking money out of the property market and will fare well while prices are high. In any case, the maintenance bills on your house are growing and you are tired of the garden. Your priority is quality of life and you are looking forward to the Scilly Isles. The good news is that there is less chance of a crash there than anywhere else in Britain: according to Experian, it is the least-mortgaged part of the UK, with the average loan worth just 18 per cent of a property.

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Only problem was: it didn’t work. After the Bank’s Monetary Policy Committee (MPC) yanked the cord last week, what happened in the money markets, which really determine how expensive our mortgages are, and which are supposed to react instantly after rate changes? Erm, nothing. Well, to be precise, the price of money actually rose, rather than fell, as it was supposed to do.

The Bank does not have a simple lever that directly reduces the cost of loans for families around the country - the way interest rates work is more circuitous than that. The MPC controls the base rate - that is the level at which it will lend money directly to banks in the City. Before offering these prices to their customers, the banks and building societies then add or subtract a bit from the bank rate, to take into account where they think rates are going to go.

This is why fixed-rate mortgages are sometimes a little above or below the official Bank of England rate, but not too far from it. The problem, as the MPC learnt last Thursday, is that the link between its rate and the private bank rates has been severed. This is the credit crunch, with banks so fearful about losing their money that they have yanked up the cost of borrowing. To be fair, central banks in Europe and the United States are facing the same problem, but that hardly offers much reassurance when you consider the problems facing the economy.

The market appears to be slowing fast. There is every chance this could turn into a nasty crash of the type experienced in the late 1980s and early 1990s. Until recently, I had assumed that this crunch would be less painful or prolonged because interest rates are under the control of an independent central bank rather than the Government. But in the past few weeks it has become clear that rates are, in fact, quite simply out of control.

The implication is that the cut in interest rates will not filter through to as many homeowners as it would have done previously. Those with tracker mortgages will benefit - as will those on standard variable rate deals (provided the lenders pass the cut on) - but fixed-rate deals may be high for some time. Given that there are about 1.5million people likely to renew their mortgage deals in the next year, this is worrying.

The hope is that, before too long, the link between bank rates and the real world will be restored. This may well happen after Christmas. But either way, with the economy hurtling downwards at an ever-increasing speed, the Bank has very little time left to find a way to get us safely down to firm ground.

By Edmund Conway, The Daily Telegraph