With all the doom and gloom in the news regarding the credit crunch its difficult to think that some people may be sleeping well knowing they have nothing to worry about. Depending on your current financial situation and housing status this is infact true, here are a couple reasons why!
Of course, being well off in times like these is always good, and providing you have security for your income aswell then there are benefits to be had. One of the main concerns about the credit crunch is job security, whether you are employed or self employed it is easy to see that many industries have been affected by the credit crunch, because of this businesses are going bankrupt and people are being made redundant. On the flip side however there also industries that will remain unaffected, many of these are public services and government sector but also to a certain extent IT and some parts of retail (people are always going to have to eat!)
So, if you have good job security, a good steady income and either a secure mortage or even better no mortgage at all there are certain things that have come down greatly in price due to the credit crunch. Take cars for an example, the majority of people affected by the credit crunch are unable to afford a higher performance cars, not just for the fact that their expensive but also due to high running costs, tax, petrol etc (although incidentally petrol is as low as its been for quite some time) So due to this drop in demand, prices have come down significantly for high performance cars, people simply cannot sell them and so have been forced to knock several thousand off the price.
The same applies to some electrical goods, and services. The simple fact is, if people cannot afford to buy them, sellers are forced to lower their prices, and because of this it is a perfect time for those who can afford it, to take advantage of the situation.
As much as I feel for those in a financial crisis and I do hope that there is light at the end of the tunnel, it is also nice to see that not everybody is struggling and that some people are able to make the most of the current turmoil the country is in.
Monday, 5 January 2009
How did the credit crunch start?
It seems like everyday on the news there is a story related to the credit crunch, house prices are falling, people are losing money and struggling to keep up with their monthly payments, thousands are at risk at losing their homes. So where did all this come from?
Believe it or not the problem started over in the United States, it all starts with banks and mortgage lenders alike giving mortgages to people they shouldnt have, many who had bad credit ratings to begin with. Ok, so your probably thinking, why on earth did this happen in the first place? Well, for that we can thank an american law called the Community Reinvestment Act.
Without going into too much detail about this law, it basically says that banks are forced to give out loans to poorer communities, the kind which would normally be rejected due to be several financial factors. The banks must convince certain bodies that they are not discriminating if a loan is rejected.
It is amazing how this has had a knock on effect for the United Kingdom. The main problem is that some of these mortgages were sold to banks across the world (including of course, the UK) And so began the downward spiral, banks were unwilling to lend to other banks in fears of these bad mortgages causing debt in the banking system, and ultimately this was one of the main factors that led to the fall of Northern Rock.
So what does this actually mean for UK citizens? Well it depends a lot upon your current financial situation and housing situation. People who have recently bought a house and took out a mortage are affected the most, with housing prices plumetting and therefore homeowners losing a lot of their equity.
It is difficult to predict when the credit crunch will end, some predict this year things will begin to 'level-off', however with so many affected it will not be an overnight fix. It is important that the economy learns from the mistakes and ensures that the sub-prime mortgage situation never occurs again.
Believe it or not the problem started over in the United States, it all starts with banks and mortgage lenders alike giving mortgages to people they shouldnt have, many who had bad credit ratings to begin with. Ok, so your probably thinking, why on earth did this happen in the first place? Well, for that we can thank an american law called the Community Reinvestment Act.
Without going into too much detail about this law, it basically says that banks are forced to give out loans to poorer communities, the kind which would normally be rejected due to be several financial factors. The banks must convince certain bodies that they are not discriminating if a loan is rejected.
It is amazing how this has had a knock on effect for the United Kingdom. The main problem is that some of these mortgages were sold to banks across the world (including of course, the UK) And so began the downward spiral, banks were unwilling to lend to other banks in fears of these bad mortgages causing debt in the banking system, and ultimately this was one of the main factors that led to the fall of Northern Rock.
So what does this actually mean for UK citizens? Well it depends a lot upon your current financial situation and housing situation. People who have recently bought a house and took out a mortage are affected the most, with housing prices plumetting and therefore homeowners losing a lot of their equity.
It is difficult to predict when the credit crunch will end, some predict this year things will begin to 'level-off', however with so many affected it will not be an overnight fix. It is important that the economy learns from the mistakes and ensures that the sub-prime mortgage situation never occurs again.
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