Credit Crunch one Year on

In August of 2008, the global credit crunch hit its 1 year anniversary.

For those that are unaware, the credit crunch is the limiting of how much and how often loans and credit will be provided to individuals that apply for it, either by not providing the loans to anyone of high risk, or offer it to people but increase the interest rate considerably in order to reduce risk to the bank.


Housing Markets
The credit crunch began because the housing markets in both the UK and the US started to drop considerably, meaning that available equity dropped as well and loans began to not be paid back.
The result goes beyond simply the housing market. When money cannot be lent, money cannot be made. Interest rates rise, people are no longer able to afford their payments, foreclosures start to arise and the economy enters a recession.

And that is what appears to be happening. While some economists and politicians refuse to use the word "recession" due to its connotations (and the way it hints at a failure of the government), the result is that people are unable to spend money, businesses falter, jobs are lost, more people are unable to spend money and so on.

Despite both the UK and US government efforts to right the recession, it does not appear the credit crunch will be letting up for at least 2 more years according to many economists, possibly longer. There are some that believe the ship can be righted sometime in 2009, but the general consensus is that because of the sweeping changes that occurred due to the severity of the credit crunch, the likelihood is that it is going to take anywhere between 2 and 5 years and a small chance that it will take longer.

The Future of the Credit Crunch
That said, in order to fix the credit crunch, spending needs to increase. There are stimulus packages that have been sent out to boost the economy, but they have not worked out as planned. Since the UK market has a lot invested in the US market, it will be interesting to see if a regime change in the White House makes a difference in the way that the economy responds. There is a chance that a change - any change - has the potential to improve the economy.

But until the housing market improves, one can be sure that the credit crunch will continue. You can still get loans, but be sure that you compare them thoroughly to make sure the interest rate is something you can afford, and try to save some money every week in case of an emergency.

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