The Credit Crunch
What is ‘The Credit Crunch’?
A credit crunch (also known as a credit squeeze) is a sudden reduction in the general availability of loans (or credit), or a sudden increase in the cost of obtaining loans from banks.
Are we in a credit crunch?
We are most certainly in the midst of a global credit crunch. The main cause was subprime credit risks, mainly people with poor credit ratings being unable to meet higher debt repayments to US mortgage brokers due to rising interest rates. The housing market came crashing down as more properties were repossessed and sold on for profit.
This debt is sold onto other financial institutions around the world (banks & mortgage providers). When they are unable to collect on the debt, financial institutions are unwilling to take on more debt, they have less to borrow so tighten their lending criteria.
Many people blame consumers for abusing the amount of credit available, but the main focus lies with the lenders themselves for irresponsibly borrowing to high risk consumers.
How will it affect me?
Check your credit rating, as you may find it more difficult to get a mortgage or remortgage if you’re deemed to be a high risk investment.
The housing market will be the hardest hit; with prices falling, you will have lost some equity in your property or find you may be in negative equity. This is where you owe more on your mortgage than your property is actually worth.
Banks have tightened their lending policies to reduce their risk, so you will find it difficult to consolidate debts with a loan. However there are still options available to help you like Debt Management, IVA and Bankruptcy.
Debt-Simple Debt Solutions
For free advice on the best debt solution for you contact us
Jump to Main Content