There is a saying among economists, "When America sneezes, the world catches a cold". This means that if the US experiences an economic downturn then so does the rest of the world. This saying certainly seems true at current times with the ongoing global credit crunch which started with sub-prime mortgage lender issues in the US. You've no doubt been hearing about the crunch and the huge figures wiped off the stock markets but what does it really mean to the typical individual?
The credit crisis, cause by the burst of the US housing bubble, has been magnified because many central banks are now unsure of the kind of risk carried by many of their customers. Due to a lack of regulations for US lenders many US banks underwrote home loans to consumers with less than ideal credit scores, known as sub-prime consumers. They then onsold these "bad loans" to financial institutions around the world. Desperate to prevent further losses from the sub-prime fallout - which the International Monetary Fund (IMF) has estimated to top out at $945 billion dollars - banks have now imposed tougher credit checks in order to protect their mortgage loans. For first-time buyers, this is often one of the toughest consequences of the credit crunch, as new credit is often seen as a major risk to banks and mortgage lenders. One of the big casualties have been the major non-bank lenders who have normally provided a good option for first time buyers. Virgin Money for example has had to stop providing mortgages as they can no longer get the funding they require from other lenders to finance those loans.
As the costs to the banks increased and to protect their assests many banks have been raising interest rates way above official interest rates and as a result a record number of home foreclosures have been seen. This has been a major contributor to the downward spiral of the global credit crunch, as home foreclosures result in an increase in interest rates for mortgage loans, which in turn spurs on more home foreclosures. For the average consumer, this means that more and more banks will refuse to underwrite mortgage loans, in an effort to protect their dwindling profits. If you happen to have anything less than a perfect credit score, this presents even more of a challenge, as anxious banks have come to view average credit scores as a risk equal to that of a sub-prime borrower.
So, what does this really mean for you? Even if you're not in the market for a new home, or can still make your mortgage payment, the credit crunch is still draining your wallet. Prices for food, fuel, and utilities have been skyrocketing, while job opportunities are decreasing - so while you may be making the same salary, your cost-of-living is significantly increasing each day. Many people who once lived within their means are now struggling to stretch each paycheck, with what seems to be no relief in sight.
In figures released by Moneyextra, the value of the average home purchased by such consumers has risen by three per cent to stand at 187,911 pounds. And with the typical first-time buyer mortgage now accounting for 133,943 pounds, the personal finance publication suggested that these people need some two years' average earnings just to be able to afford a deposit. Pointing to the annual figures from the Office for National Statistics, the average full-time salary over the course of a year is 24,000 pounds - meaning that a deposit of about 48,000 pounds is need for people wishing to take their first steps on the housing ladder. However, for those consumers who are attempting to raise sufficient funds to help put down a deposit, a quick loan may prove to be of use.
Further research from the firm also indicated that the typical house price has gone up by 2.3 per cent in the 12-month period leading up to November to stand at 227,484 pounds. However, it was suggested that this figure "conceals some sharp variations in the market sectors". Consumers looking to remortgage their home have seen the value of their property go up by 8.6 per cent during this time to 256,868 pounds. On the other hand, prices for people wishing to move house are reported to have "come down fractionally".
Commenting on the statistics, Robin Amlot, senior editor of Moneyextra, said: "The sharp rise in property values of those remortgaging may be an indicator of how the credit crunch is extending beyond the traditionally vulnerable sectors of society. At the same time we've also seen an increase of almost a fifth (18.8 per cent) in the average value of secured loans being sought over the last 12 months."
Mr Amlot pointed out that the typical secured loan now stands at some 31,578 pounds - an increase from the 26,584 pounds noted in November last year. The senior editor went on to suggest that prospects for next year's mortgage market are "fairly grim". He stated: "While interest rates appear certain to be significantly lower in 12 months' time we may have an uncomfortable journey getting there." Applying now for a cheap secured loan could therefore be an advisable idea for those who are particularly concerned about their ability to manage their money over 2008.
Indeed, a cheap loan could be a recommended means for many consumers to help afford the various expenses that come with purchasing a home. Whether prospective first-time buyers looking to free up money to afford a deposit or existing property owners aiming to reduce their overall expenditure so they make mortgage repayments, applying for a loan may be one means by which to get help with managing spending. A low-rate secured loan may prove to be of particular assistance for many after a study conducted by the Council of Mortgage Lenders (CML) earlier this year indicates that mortgage interest payment levels for first-time buyers reached 19.1 per cent in May, the highest figure noted since 1992. Meanwhile, existing homeowners were paying out some 16.6 per cent of their annual income towards mortgage costs, as the CML reports these people face "increased affordability constraints".
Both Richard Greenwood & Abbi Rouse are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Richard Greenwood has sinced written about articles on various topics from Debit Credit Card, Credit Card Offers and American Express Card. Richard Greenwood heads of bank comparison network, the Click 4 Group which helps consumers and. Richard Greenwood's top article generates over 135000 views. to your Favourites.
Abbi Rouse has sinced written about articles on various topics from Personal Finance, Careers and Job Hunting and Diabetes Treatment. Abbi Rouse writes for All About Loans. Visist us today to apply for cheap,. Abbi Rouse's top article generates over 49500 views. to your Favourites.