A credit crunch happens when banks begin clinging to their money rather than lending it out. The result of this is that fewer people are able to get loans, credit cards and mortgages so things that we would buy if we had those credit facilities – such as houses, cars, holidays and so on – are no longer an option.
This of course has a very detrimental effect on the economy; people are spending less so the profit margins of all sectors in the UK suffer.
Why did it happen?
The USA led the way for the crackdown on credit because their mortgage market went into a severe slump. You’ve probably heard of the ‘chaos theory’ whereby if a butterfly flaps its wings a thousand miles away, on the other side of the planet, a hurricane will happen. That’s not a literal translation of the theory, but you probably get the drift. Basically, whatever happens to America’s economy will eventually have an aftermath effect on the U.K economy.
A lot of U.K and European banks were also investing in the US Subprime housing market and lost money subject to its collapse, making them less able to raise money for U.K Mortgage lending.
Should I be worried?
That largely depends how much you rely on credit and equally as much on how good your credit history and credit score are. It’s still pretty easy to get a mortgage in the UK but only if you have a flawless credit history. To check your credit visit http://www.creditcrunch-
People who don’t are going to find the going a lot tougher, whether that’s for a mortgage or a credit card or loan.
