How the credit crunch has affected the availability of finance
December 26, 2007
Since August of this year the UK has been seeing the effects of a global credit crunch, which has swept across this country and other countries having been sparked in the sub-prime mortgage sector of the United States. The credit crunch has affected many different areas of the financial sector, leaving a path of destruction across most areas of the money markets like a financial hurricane.
Most areas of the financial sector have taken a real battering as a result of the credit crunch, and as a result of this both the industry and consumers have suffered. There have already been a number of victims of the credit crunch in the UK, perhaps the most notable of which is Northern Rock, which became the victim of the first run on a British bank in around 150 years.
The Mortgage markets have suffered considerably as a result of the credit crunch, and some lenders are struggling to raise the finance they need to cover lending costs. Many banks are now relying on deposits into savings accounts in order to fund mortgage lending, and with increased inter-bank charges to deal with as well experts are concerned that more and more lenders could feel the impact of the credit crunch in 2008. The consumer has seen a number of mortgage lenders take some of their mortgage deals and packages off the market.
The loans market has also been affected by the credit crunch over recent months, with lenders applying more stringent regulations when it comes to approving applications loans have become less accessible to many people, such as those with damaged credit. In addition to this the number of lenders offering unsecured personal loans, which do not offer the security of being secured against an asset, has decreased, with a number of lenders taking their unsecured personal loan ranges off the market.
Some lenders have taken their unsecured personal loans off the market over the past couple of weeks, and one industry professional stated: “Such a large reduction in just the last month is worrying. With no signs of rate rises slowing, it’s a rather unsettled market. The credit crunch is showing its strength in the personal loan market.”
Credit cards have also been affected by the credit crunch recently, and reports have shown that credit card providers have taken a number of steps to protect themselves. The level of credit card application rejections has fallen quite significantly over recent months, with credit card companies having put increasingly stringent lending criteria into place in order to reduce the risk of lending to riskier customers.
Some credit card companies have also reduced the credit limits on their cards. There have also been a large number of rate and charge hikes from credit card providers over the past couple of months, as these lenders try and minimize on financial impact. This has made it increasingly difficult for many consumers to get credit cards, and has reduced the amount of credit extended to many existing credit card customers.
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