Hey guys,

Credit Crunch Stage 1

This stage was all about poor lending practices in the US and the fact that these lenders in the US had sold their loan books onto other companies around the world. This stage was also about declaring the losses of large institutions, but it didn’t really directly affect the individual investors (like you and I) — except through perception.

Stage 1 also saw many lenders profiteering from the squeeze. Loan to values dropped to 75%-80%, interest rates went from 5.5% to 6.5% and arrangement fees went from 1% to 2%.

The end of the credit crunch appeared to be around the beginning on May when mortgages settled down and lenders began to hold products long enough for people to actually apply for (and get) the mortgage.

All seemed rosy and delightful albeit that prices were falling and the economy slowing. Then came along a new sting…

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Credit Crunch Stage 2

One of the byproducts of the credit crunch is that as the rates and arrangement fees increased, and loan to values decreased, a lot of people began to run into difficulties because things had changed so quickly, and to such a great degree. It especially hit those coming off the fixed rates and those with low discretionary incomes.

So the sting in the tail is…

As mortgages became more expensive and harder to secure, more and more people will default on their mortgage payments. Increased defaults mean the lenders who want to sell their loan books off will struggle. This could well have the effect of further prolonging the credit crunch.

I believed that the worst of the credit crunch will be over in the last quarter of the 2008. I still believe this to be the case. Employment is still strong, inflation is high, but most commentators agree that it will come down next year. In addition, it’s mostly food and fuel inflation as opposed to wage and lifestyle inflation which is good news for the Bank of England and for our interest rates as well.

As always the team are happy to discuss the current market with you should you need a little clarification or guidance. In times like these, it’s vital you get quality information, not the sensational bullsh*t being printed in the papers.

Live with passion,

Brett Alegre-Wood

PS. I will have my latest guide out in the next few weeks called ‘10 tactics to survive the economic downturn’

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