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‘The UK Credit Crisis’ – Opinion By Amicable Business Coaching
Posted: Thursday 17th Apr 2008
The benchmark FTSE 100 is currently very volatile due to credit crisis fears, leading to the market’s biggest shake-up since the dotcom crash. As a result, there have been large drops in the shares of the banking, property and major companies, which have reflected the pressure of the credit crunch and a now unstable economic future.
As lenders seem set to adopt stricter underwriting policies, it will be much easier now to be labeled a high credit risk simply due to a minor financial error in the past.
But while lending standards are tightening significantly, the tipping point is not yet at hand and so creditworthy borrowers still have access to credit. But lending policies are now reducing high loan to values, increasing credit checks and rejecting more high risk business.
Currently stricter credit controls for borrowers should reduce the pool of potential buyers’ liquidity and affordability factors may stop some customers from closing, while others may find it more difficult to sell their existing properties.
Meanwhile, high borrowing levels and high house prices are now finally beginning to turn. This has had an effect to banking shares, that have recently dropped sharply to reflexes in the current market. Banks are nervous about lending each other money and this has greatly affected some bank systems: for example Northern Rock with its system that relied heavily on other banks’ borrowings
Elsewhere, late payments, arrears and defaults among adverse borrowers, who have poor credit or high levels of debt, are at a 10-year high in the US. Lower house prices continue to affect many areas of the USA as defaults rise across all mortgage product categories, including good clean borrowers with acceptable credit histories.
This is due to very bad lending where risk was too high but sidelined. Those customers now are struggling to refinance due to tighter controls and many homes are due to be repossessed.
With this in mind, UK’s smaller businesses are potentially facing collapse as a result of the credit crunch, leading groups have warned, as lenders take back profit by charging the highest rate of interest on business loans since the late 1980s. The near future now looks particularly harsh.