“The Credit Crunch” has been a phrase used on a daily basis by newspapers in the last 12 months to September 2008. But what is it and how does it /will it affect the property market- home and abroad ???????? The bottom line is that lenders have been very lax in the way they lend monies to their potential borrowers. The problem is much worse in the U.S. than in the UK for example but nevertheless; the criteria for borrowing has changed substantially in the last 10-15 years which has meant that basically anyone can get credit- no matter what their credit history is and earnings seem to be an afterthought in that self certification seems to be the norm or the default meaning that borrowers greatly exaggerate their incomes to obtain for example the mortgage they require. The UK worse case scenario generally seems to be a 10-15% deposit on a proposed residential property with no income checks and a weak credit history not stopping you from getting a competitive mortgage rate but in the U.S. you have been able to obtain 120% mortgages on a self cert basis with a low credit rating- which quite frankly is ludicrous. The average mortgage in the UK for a first time buyer in 1997 was 2.3 times income at a value of £41,800 but by 2007 that had grown to 3.36 times income on an average mortgage of £116,820. Just when house prices reached their zenith, the banks etc increased available loans to a staggering six times income and now lenders are reaping what they sowed.
The UK housing market is more protected than the U.S. because of our housing shortages and demand outstripping supply but the bad debts of worldwide lending institutions because of their bad lending decisions has meant that money for loans has now been restricted meaning lenders now operate stricter controls and are much more choosy who they lend to and their rates are not as competitive as 6 months ago.
The above means that house prices are dropping in the UK but this will make Brits want to move out of the UK quicker than they are now and spur people into action as they are seeing bad news in the housing market, rising taxes, higher inflation, higher mortgage costs and generally a lower standard of living.