After what feels like an eternity in recession, lenders are still not keen to lend and until the UK general election is over, it doesn’t feel like very much is going to change.
Pre credit crunch times had a mortgage market providing in excess of 25,000 different mortgage deals and loans galore, but today the UK markets have less than 5000 mortgage products on offer to the consumer.
So where did the credit crunch come from and could it happen again?
The US finance markets imploded in the 4th quarter of 2007 due to bad credit on the balance sheets of large financial institutions, which ultimately caused what is known as a credit crunch.
In a credit crunch, lenders stop lending and start hoarding cash because they are afraid of rising bad debts, leading to bankruptcies and loan or mortgage defaults. They charge higher interest rates in a bid to stem the flow of business or reject all but the safest loans.
The UK economy had been flooded with easy to access borrowed money since the mid 90’s, but the credit crunch meant that tightened credit would spell trouble for companies who needing funding in the form of loans to pursue their business plans and the consumer, who had become used to freely spending money they didn’t have, but could easily access on credit cards for expensive purchases such as luxurious holidays and smart cars.
The answer to could it happen again is a simple one, YES!
If an appetite for investment in more risky markets returns, which you have to say it will, then pushing the limits commercially to gain extra percentage market share and profit, could lead to the whole thing happening all over again. Having said that, it will take sometime to get there, as returning confidence to dabble by investors will be slow to return, but good times will return and the painful effects will soon be forgotten.
So, how is the man on the street directly affected?
UK mortgage and loan lenders are releasing more new products on a daily basis and the best mortgage deals of today are soon replaced tomorrow, but the good news is that the deals are getting better and better. The percentage levels that lenders will loan to is increasing and a 90% mortgage, with a competitive interest rate is out there to be found, if you know where to look.
So how do Independent Financial Advisers add value?
Independent Financial Advisers (IFA’s) are well placed to search the market, compare mortgage rates on their client’s behalf and secure a great mortgage rate to suit the borrower’s exact needs. In addition to finance, IFA’s can provide a good value for money service if you are looking to source good quality, value for money, but cheap life insurance cover and pension plans, with advice that is specifically tailored to the individual or families needs.
Financial advice is available in many guises, the internet has led to a plethora of channels being available for the consumer to utilise when seeking help and advice. Finance related price comparison websites have the added advantage of being a one stop shop for all mortgage, loan and insurance needs. By completing your details once, you have the advantage of using their services to trawl the market and find you the best deals available, but there is still an argument for using the services of a local to you, independent financial adviser. The IFA can take the time to understand any unusual circumstances that you may have and tailor their financial advice accordingly and some finance price comparison websites are now offering both options under one roof to facilitate the needs of a far wider consumer group.