Credit Crunch Not As Bad As First Thought
Over the past few months, we’ve all constantly been hearing about the “credit crunch”, the slowing down of the global economy, fuelled initially by the collapse of the American sub-prime mortgage and loan market. This has had a dramatic effect on banks and other lending institutions in this country, as well as indirectly causing other businesses and services to suffer, not to mention those of us in the UK who have mortgages and loans on their homes.
But latest figures from the Bank of England suggest that the situation may not be quite as severe as was first thought, according to their most recent financial stability report. Original estimates for financial losses caused by problems with sub-prime mortgages and loans were in the region of $400 billion, but these new figures from the Bank suggest that this has been greatly overstated and that the actual figure is more like $170 billion.
The Bank of England also states that the situation in the financial markets should improve as this latest news filters through to the main high street banks and other lenders, although this could take some considerable time as lenders remain extremely cautious after being hit so hard.
The good news is that, as confidence returns to the financial sector, this will give a welcome boost to the struggling housing market, which should help to re-vitalise the economy. The bad news however, is that because of this expected turnaround, the Bank of England is increasingly less likely to reduce interest rates in the foreseeable future, especially as inflation is still above the target rate. This means that those individuals with loans and mortgages outstanding on their homes are not likely to see a reduction in the cost of their borrowing.
