The global credit crunch, which has dominated financial news headlines over recent months, continues to wreak havoc across the UK. Since it made its way across the Atlantic last summer the credit crunch has taken its toll in all financial sectors, and has made things difficult for both lenders and consumers. Many lenders have been hit hard, because the crunch has resulted in increased difficulties in getting finance on the wholesale money markets and increased costs relating to inter-bank lending. This means that lenders are finding it more difficult and more expensive to raise the finance that they need to fund their lending.

Over recent months an increasing number of consumers have found that trying to get any form of credit has become more difficult and expensive, and this is because of the action taken by lenders to try and protect themselves as much as possible from the effects of the crunch. Lenders have raised interest rates on various financial products, including mortgages, loans, and credit cards, and have also tightened up on their lending criteria, leaving many consumers out in the cold when it comes to getting finance. Many have also taken various financial products off the market, and have changed their lending criteria, which has also affected many consumers’ ability to get finance.

The mortgage sector has been particularly hard hit by the effects of the credit crunch, and there have been many changes when it comes to mortgage lending, as lenders try to deal with the problems caused by the financial turmoil. Since last summer, before the credit crunch took hold, the number of mortgage products has plunged by two thirds, leaving consumers with very little choice. First time buyers have been badly affected, and this is as a result of lenders withdrawing 100% and 125% mortgages, which have always been popular amongst first time buyers with little or no deposit. The situation has been made even worse by lenders now demanding a far higher deposit than the traditional 5% in order to access their best deals, with some lenders asking for as much as 40% of the property value by way of a deposit in order to access competitive rates.

Those with bad credit have also been hit hard, as lenders are being far more cautious about who they will lend to, and those with damaged credit face an increased risk of rejection due to the credit conditions caused by the global credit crunch. A combination of these cutbacks and changes in both the mortgage and the general financial markets has resulted in severe difficulties for many people, and industry experts, including banking officials, have stated that the situation is set to continue over the course of this year.

By: David Lynes

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