Impacts of the Credit Crunch - Some Thoughts

Current UK Property Market

The property market in the United Kingdom, which has undergone significant growth in recent years, appears to be experiencing a downturn. According to a major UK mortgage lender, residential property prices fell by 0.5% during February 2008 – the fourth month in a row that they had fallen – bringing the annual rate of inflation

down to just 2.7%, its lowest level since late 2005. Buy to let property investors, in particular, are finding that the number of mortgage products available is restricted, and that – as a direct result of the "credit crunch" – mortgage lenders are less willing to approve mortgage applications. All is not "doom and gloom",

however; despite caution on the part of banks, and other financial institutions, in offering mortgage loans, demand for rental property remains high, and is likely to increase in the future.

The Credit Crunch

The credit crunch, as it has become known, began with problems with the so-called "sub prime" mortgage market, in the United States. This sector of the mortgage market deals with mortgage products – also known sometimes as "impaired credit", or "bad credit", mortgages – that are suitable for borrowers with low incomes, or poor credit ratings, for one reason or another. Increases in interest rates, and the cost of borrowing – reflected by record levels of mortgage loan defaults, and repossessions – led to fears in the financial community about exposure to bad debts, and unwillingness to lend money, even to other financial institutions. The collapse of Northern Rock bank and, more recently, of the global investment bank, Bear Sterns, are high-profile examples of the result of the credit crunch.

However, despite a tightening of lending criteria for property investors in the United Kingdom, and a rising cost of borrowing – despite recent cuts in the Bank of England base lending rate – credit from banks, and building societies, is still available. Obtaining a mortgage loan, for buy to http://www.1000mortgages.co.uk/investment-property-in-the-uk.asp investment property, or any other property purchase, is certainly likely to be more difficult than it has been in the recent past, particularly for those borrowers with poor credit ratings. Indeed, many of the more attractive mortgage offers are being

withdrawn, often at short notice. The recent trend in housing prices may continue for some time yet – not, perhaps, to the extent that many first time buyers would wish – but housing is, generally, in short supply, and the prospect of a major housing price crash is unlikely. Economic recession is far from a foregone

conclusion, and the financial sector is widely expected to recover from the credit crunch, as investor confidence increases.