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30 July 2010
Rates as low as 6.7%

Credit Crunch Explained and its Impact on the UK Economy

For over a year now you have been hearing the words credit crunch or credit crisis in the media at least once a week, if not more than that. You might have even wondered what the credit crunch is all about, and how it has impacted the UK economy. For those looking for new mortgages or secured loans you might already know this answer, or at least part of it.

The credit crunch started in the US. The US kept extending secured loans and home mortgages to the subprime market, in other words to individuals who were struggling to make the payments back on the loan. Many began to default as the adjustable rate mortgage kept climbing without regulation. The banks then began to lose large sums of money. What you might not know is that the banks are all tied together. While each country like the US and UK has their own central bank, that doesn’t stop them from loaning money between countries. Northern Rock is a good example of how the credit crunch has affected the UK on the basis of the US subprime crunch. Northern Rock, although a UK bank, had heavy investments in banks in the US. As the subprime market fell they too lost a great deal of money. In fact if it wasn’t for the bail out at the end of 2007, Northern Rock would have had to close their doors.

The rescue effort for banks in the UK that were involved in the US subprime market created a global credit crunch, specially linked to the UK. Since the credit crunch began, many UK banks have been suffering as the economy worsens. The housing prices on homes were rising and inflation numbers are up to 3 percent, meaning that services and goods are more expensive. With the services and products becoming more expensive due to inflation and the salaries remaining the same, those with secured loans and second mortgages are most affected, especially individuals with the subprime loans.

The credit crunch has caused the Bank of England to lower the base rate they offer the banks and building societies. However, you as the consumer are not seeing these decreases from the high street banks. Instead you need to find places like ISecured Loans that offer a cashback loan in order to reap the benefits of the lower interest rate. There are secured loans on the market for 6.7 percent interest depending on your credit score. Many of the high street banks are at 7 percent or higher.

At the moment the UK economy is trying to decide what is best. Projections for another decrease in the base rate by the Bank of England are expected, but this could through the inflation to a higher rate yet again. It will be a wait and see situation for the next six months. In six months the analysts and economists are expecting the inflation to be under control and the UK credit crunch to be on the end run.

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