Where To Find Credit After The Crunch

Who knows where to turn? The private sector stands, like a man kicked in the face, unwilling to risk much when it comes to recruitment. On the other side of the room, the public sector lies, bloody and wounded. Or rather it lies, pre-empting the bloody, wounded mess it’s set to become. Its only solace the fact that predicted job losses is down from 490,000 to around 400,000.

Probably not the best time to switch jobs then? Not too many opening s at the moment and those that are there are massively oversubscribed. It wasn’t long ago that the jobs section of the Thursday Telegraph was a full pull out section on its own, full of hundreds of jobs. Now it’s a single page at most tucked away in behind the TV schedules. Unfortunately though a career change is possibly the only way many people can increase their income as pay freezes hit widely across the UK. Is it less than three or four years ago when we suckled on the large breasts of credit until we slept, comfortable and happy that all would be well. Would we have suckled less knowing the indigestion we suffer from now? Having built our life on credit now it is no longer there, we have a problem. We find it difficult to buy things, even such things as houses!

So onto the scene comes Jonathan Davis, a top wealth management advisor and a man whose expertise is regularly featured across the UK media. This man is going to know a thing or two about what is going to happen with money markets and specifically lending trends over the next 3 or 4 years. It started to become abundantly clear that serious damage like this will take long time to clear up. Deep wounds don’t heal overnight, we have just been through major surgery and the surgeon is still looking for his watch. Jonathan, as incisive as ever, explains that this problem has been building up for a significantly long time, “the big picture is that for 30 years, we’ve had a growing debt problem”. Of course it’s not just us this affects all the major markets in the West. Debt in the West I suppose! It all bubbled in 2006-2007, and now we’re experiencing the hangover of the debt party. I refer you to the 1930s, and the depression based upon de-leveraging effects following, by then, the biggest debt bubble in history during the 1920s.” Jonathans next comment made me think, and shiver, ” This time it’s from the biggest debt bubble of all time.”

“The banks are, technically, insolvent themselves. You’d be hard pushed to find a bank or building society in the UK that is solvent, when real assets are taken into account. It’s all well and good to have property, but if that lies vacant, and there’s a loan outstanding, then it’s a loss. Look around in every town, in every city. Look up, and you see To Let everywhere. 10 per cent, or at least 10 per cent of shops are lying empty, then you’ve got warehouse, office and manufacturing facilities. “In other words, you’ve got an enormous swathe of bad debt coming down the line. That’s one of the reasons banks are reducing lending, because they know they will be cutting red ink right across the balance sheet in due course. On top of that they also have the wider G20 issue, of what’s called Basel 3, which is a change in the regulations of international banking,” Davis continued.

To try and prevent this all happening again we demand tighter regulation on banks. However it appears that Great British Public are behind the bailout, you and me are again set to foot the bill, the punishment, what did we do wrong? In simple term, which to Jonathans frustration is all I can take the Basel 3 means banks need greater reserves. This means they keep more of their own money locked in the vault and don’t lend it out. They lend less. Davis explains that “Basel 3 is to prevent a future bubble emerging, followed by a crash. We’re still in one crash right now, and it will continue for years,” This still does not sound any better.

From this I can see we can safely assume that lending restriction are going to stay in place for some time to come. One thing I certainly would be interested in is how this all affects interest rates, in terms of are we going to see massive rates just to be able to borrow money? “People are already massively in debt. The amount of debt in society is more than there ever has been. I read surveys from big financial institutions that say if the cost of living goes up 100 per month, people couldn’t afford to live- that’s how bad it is,”

While the experts are always worried about people turning to the more shady elements to gain credit, the fact interest rates are up and criteria is simple according to Davis “The banks are actually discouraging folk from taking on more debt by increasing interest rates, way beyond the base rate- really it’s all they can do, it’s not because they want to.”

“So the trend in the future will be that people will not be taking on more plastic credit, they will not be increasing consumer spending, they will not be taking on mortgages, because they simply can’t.” So we can’t get into debt, because nobody is prepared to lend. Jonathan goes onto explain that this brings us full circle to the original hypothesis, which is that the banks have got no money. Hence they can’t lend. So in the UK we have the smallest quantity of mortgages being underwritten for a decade.

Davis (and practically everyone else we talked to for that matter) were pretty disparaging of the TV advertised loans sector, payday loans, cash for gold etc, “If you’re talking about over-priced, bad loans, they will always be advertised on TV, and they will pick up market share. But really once you start dealing with those types of businesses, you’re on a hiding to nothing- they’ll just take your house off you for the sake of a few thousand pounds.” It’s no wonder they have such bad reputations, it should be a crime they get to advertise at all, thankfully though most see through the veneer and don’t fall for it, though there will always be a few who do or have no choice.

At the end of the day the bubble had to burst at some point didn’t it? Whilst it’s impossible to predict the future, it’s clear that changes do have to be made; harsh changes that may take some time for us all to become accustomed to. The coalition is right in that the only way to get a grip on the countries debt is to curb spending. So what about obtaining credit after the crunch? Well if you’re in desperate need, and by that I mean that it really is a last resort, then the most important thing to do is to seek professional advice. Otherwise, it is strongly recommended that you look at consolidating your outstanding debts before you look to take on more; surely that’s the sensible option anyway?

James writes for Just Remortgages one of the UK’s top sites for the latest remortgage rates and best remortgage deals

categories: economy,economics,jobs,unemployment,mortgage,refinance,debt