How to survive a credit crunch

Most people these days have heard the term global credit crunch banded around, and some people have already experienced what a significant impact the credit crunch has had when it comes to finances.

These days getting any form of credit has become a real chore, with lenders reluctant to give out finance, and with credit conditions becoming increasingly tighter, and fewer credit deals on the market.

Background information

The global credit crunch was sparked in the sub-prime mortgage sector in the United States, and made its way across to the UK late last summer.

Before August of last year many consumers in the UK took easy access to finance for granted and had never heard the term credit crunch, but within weeks the financial headlines were dominated by the situation, and lenders quickly began to respond to the effects of the credit crunch by significantly cutting back on business and becoming increasingly cautious over who they would lend to.

Since the onset of the credit crunch all financial sectors have been affected. Credit card firms have reported a drop in the level of applications being accepted due to more stringent eligibility requirements, the interest rates on unsecured loans have gone up, and the mortgage industry has gone through a slump in lending levels.

Industry professionals have also predicted that the effects of the credit crunch are likely to continue for some time, which means that effectively the days of easy credit in the UK are over, at least for now.

Below are some commonly asked questions relating to the credit crunch:

Does the credit crunch mean that I can no longer get any form of finance?

The credit crunch does not mean that you will definitely not get finance, but it does mean that getting finance has become increasingly difficult.

No matter what type of finance you are after you will find that lenders have made it far more difficult, and unless you have very good credit the chances are that you will suffer if you are looking to take out finance.

How have lenders responded to the credit crunch?

Lenders have responded in a number of ways to the global credit crunch. The level of approvals with loans, credit cards, and mortgages have all fallen over recent months, reflecting the increased caution that lender are exercising when it comes to dishing out credit.

Many credit card firms have had to increase fees and interest rates, as well as cutting back on special benefits such as capped transfer fees on 0% balance transfer cards.

Unsecured loan companies have also tightened up on lending criteria, and have raised the rates on their unsecured loans. The number of mortgage deals on offer has fallen by two thirds since the onset of the credit crunch, and due to increased stringency over eligibility, as well as other factors, the level of mortgage approvals has plummeted.

Mortgage interest rates have been rising recently, and many lenders have had to close their doors on new lending, or at least put restrictions in place. Many have also raised their minimum deposit levels on mortgages.

Why have lenders had to take this action?

Since the onset of the global credit crunch lenders have found it increasingly difficult to get finance on the wholesale money markets in order to fund their lending.

Inter-bank lending has become far more expensive, and as a result of this lenders have had to both cut back on their lending through increased rates and more stringent lending criteria, and have had to raise the cost of borrowing for consumers in order to maintain affordability.

Which consumers have been most affected?

A number of groups are likely to suffer more than others when it comes to the effects of the credit crunch. First time buyers are suffering due to increased deposit levels and the withdrawal of mortgage products such as 100% mortgages, which were once very popular amongst this group.

Those with bad credit are also suffering, as lenders are becoming increasingly cautions about who they will lend to, and are drastically cutting back on lending to higher risk customers such as those with poor credit.

How long will the credit crunch continue?

Nobody really knows exactly how long the credit crunch is going to continue in the UK, but according to a number of industry officials the effects are likely to continue causing havoc in the financial markets for the foreseeable future, so there is no quick fix in place to deal with this situation.

When did the credit crunch start taking effect in the UK?

Until late last summer most people had never heard of the term credit crunch. However, around August time of last year the global credit crunch made its way across the pond to the UK, having been sparked in the sub-prime mortgage sector of the United States, and has been wreaking havoc in the financial markets since this time.