Which groups are suffering as a result of the global credit crunch?

The global credit crunch has been wreaking havoc in the UK for some months now, having made its way across the Atlantic last summer.

However, whilst the main damage has been done in the financial markets there has been a profound known on effect in other sectors as well. For example, the economy has suffered as a result of tighter credit conditions which have left consumers unable to get credit and therefore unable to spend as much as they may have been doing in the past.

Hikes in mortgage and loan interest rates have also affected consumer affordability and the economy. Another sector that has been severely affected by the global credit crunch is the housing sector, with restrictions on mortgage lending leaving many people unable to purchase a property because they cannot get a mortgage loan.

In fact, there are a number of sectors and industries that will feel the knock on effects from the global credit crunch, and these effects could continue to cause problems for some time to come.

Lenders: Since the onset of the global credit crunch lenders have experienced real difficulties when it comes to raising finance to fund their mortgage lending activities, and the wheels of the mortgage lending industry have all but ground to a halt.

The Bank of England has tried to increase liquidity in the markets by injecting billions of pounds into the money markets, as well as launching a mortgage rescue plan that will allow lenders to swap mortgage assets for government bonds.

It is hopes that this will increase confidence amongst lenders, encourage them to lend to one another again at affordable rates, and improve liquidity in the money markets.

With regards to the mortgage rescue plan the Building Societies Association recently said: “It will not in itself solve the credit crisis, it certainly isn’t going to reverse all the changes in lending policies we have seen in recent months, or restore mortgage lending to its former levels, but it should help to underpin confidence. It is vital for the Bank of England to remain very close to what is happening in markets, and it should not hesitate to intervene further and extend the facility if that is what is needed.”

Consumers: Consumers have found that since the onset getting any form of credit has become increasingly difficult. Credit cards, loans, mortgages, and other forms of finance have all become far harder to get, as lenders have really tightened their lending criteria, creating difficult credit conditions.

Those with damaged credit can expect to face severe problems when it comes to getting any sort of affordable finance, and the choice of financial products on the market has also been reduced significantly.

The economy: As most of us have already heard the economy has experienced a sharp slowdown, and the Bank of England has already reduced the base rate three times over recent months in order to try and boost the economy.

Higher living costs coupled with the tighter credit conditions brought about by the global credit crunch means that consumers do not have as much money to spare, and therefore retailers and the economy in general is suffering.

The housing market: The housing market faced a double whammy at present. Not only are house prices falling, putting many people off purchasing a property through fears that house prices may plummet shortly after they have taken the plunge, but many people are unable to get a mortgage in the current financial climate, which means that many of those that do wish to purchase a property cannot do so because they cannot raise the necessary finance.

Estate agents: whilst estate agents have enjoyed a booming trade over recent years, this has now come to an end, with some of the lowest house sale figures for years. Some officials have predicted that thousands of estate agents could end up going bust as a result of poor house sales.

One official said that this was mostly due to lack of finance for those wishing to purchase a home, adding that many lenders had over reacted to the credit crunch. He said: “Lenders do not seem to be in the business of lending any more. They are the ones who lent irresponsibly and now the public and our industry are paying the price.”

Mortgage brokers: Mortgage intermediaries such as mortgage brokers have found that whilst over 50% of mortgages were generated through them over recent years, this figure is likely to dwindle.

This is because some lenders are trying to cut out the middle man by offering more competitive deals to applicants that apply directly to them, or by offering some mortgage deals exclusively rather than offering them through a broker service.