Salar posted on August 28, 2008 17:14
It is now one year since the start of the Credit Crunch August 07, which saw both the European Central Bank and the Federal Reserve in the US open up emergency cash to prop up their banking systems. Later in the month, the crisis at Northern Rock seriously -- and I mean seriously -- shook confidence in the UK and Europe.
Signs were there even before August 07 with a growing number of banks issuing profit warnings throughout 2007, as the impact of exposure to the crisis-ridden US sub-prime mortgage market became clear.
Before the credit crunch came along and wreaked financial havoc, Before this point the UK economy was very strong. Inflation and unemployment were low, while growth was high. But since then everything has changed the economy began to falter with confidence out of the market.
Inflation has since gone way beyond the acceptable levels set by Bank of England. The effects of rising prices which many of us have endured this year. On top of that, unemployment is rising, house prices are falling and some economists agree that this is practically a recession.
For borrowers, the credit crunch has taken its toll on every corner of personal finance, As banks found it increasingly difficult to fund new loans through the money markets, individual borrowers saw the stream of easy credit disappear. Indeed, interest rates and fees for mortgages have risen throughout the last twelve months, while lenders are demanding ever greater deposits. Northern Rock once provided 125% mortgages as standard, but the market for higher-risk home loans has since dried up entirely.
These days, to qualify for the most competitive deals, borrowers are now expected to stump up a huge 25% deposit. For many first-time buyers the prospect of owning their own home has become increasingly difficult.
However, after every crunch there has to be some relaxation as otherwise the system collapses. So there is some positive news with some mortgage rates have now returned to where they were in August 2007. Which is still higher than minimum lending rate but it is a good start a year on.
When lending criteria strict then parents are having to help out first time buyers. Those who can will be buying at low prices and win in the long run.
Savers are the only winners at the moment with many banks that have found wholesale funding a challenge, so they have turned to depositors for cash instead. This has meant -- despite the credit crunch -- savings rates have held up pretty well over the last year and they should help us come out of the Crunch in time.