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FAQ: Mortgages and the Credit Crunch

By: Emma Eilbeck BA (hons) - Updated: 25 Jun 2017 | comments*Discuss
Credit Crunch Mortgage Loans Property

The credit crunch has come as a bolt out of the blue to many people. For a long time economists have been talking about the credit crunch and how it is impacting people, but what does it actually mean and how does it affect you?

What is the Credit Crunch?

A credit crunch is just that, it is a crunch on credit, credit is being squeezed which means there is less money available. A credit crunch occurs when the cost of borrowing between banks increases, making it harder for them to get money and harder for them to lend it onto you. Credit becomes more valuable making it harder to get cheap loans, mortgages and credit.

Why Are We in a Credit Crunch?

Some would argue that the banks have brought the credit crunch on themselves by lending money to people who could not afford to pay it back, such as sub-prime loans. Things started to go wrong when people started defaulting on their loans and mortgages, causing the banks to write of bed debt and the price of borrowing between banks to go up.

How Long Will it Last?

Credit crunches normally occur in cycles and come around every few years. They tend to follow a time of strong economic growth and a buoyant economy. It is impossible to tell how long it will last, some analysts predict the market will not start to recover until the end of 2009, while others think it will be nearer to mid 2010.

What Does it Mean For Me?

A credit crunch normally affects every aspect of society unless you are very lucky. It leads to high unemployment, a higher cost of living and makes it harder for you to get a loan.

What About My Mortgage?

If you are on a tracker rate mortgage you are laughing all the way to the bank at the moment because interest rates are so low. If you are on a fixed rate mortgage you will probably be able to remortgage onto a cheaper rate when your current deal runs out.

Can I still Get a Mortgage?

The mortgage market is still open for business, but lenders have had their fingers burned so they are not as willing to lend as they have been in the past. They are short of funds to lend so they want borrowers to give them a deposit for a property, this could be anything from 5 to 25%. If you have a bad credit history or have missed any payments on any loans you have it is unlikely a lender will want to give you a mortgage until you can clear you credit record.

Can I Sell My House?

The housing market generally comes to a bit of a standstill during a credit crunch. This does not mean to say you will not be able to sell your property it just means you may have to knock down the asking price by a fraction. This shouldn’t have too much of an impact on your sale though as it should mean you will be able to pay less for the property that you want to buy.

What’s Next For the Mortgage Market?

It is still uncertain whether the mortgage market will go back to the days of lending high loan to values or high income multiples. The body that is in charge of regulating the mortgage market, the Financial Services Authority has been scrutinised heavily for its handling of the industry, so in the future it looks set to come down hard on mortgage firms and make sure they are lending responsibly.

A credit crunch can impact every walk of life, whether it be an increase in unemployment, lack of lending or higher cost of living, so it helps to be aware of how a credit crunch occurred and how it will impact you.

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Clarice44 - Your Question:
If I start running a B&B out of my home do I need to change my mortgage?

Our Response:
You can see more via the gov.uk link here which should answer your question.
AboutMortgaging - 26-Jun-17 @ 12:55 PM
If I start running a B&B out of my home do I need to change my mortgage?
Clarice44 - 25-Jun-17 @ 9:24 PM
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