View more on these topics

Opinion: Ten years from the crunch, vigilance is still key

Edwards-Dave-Personal-Touch-2017

It’s now ten years since the credit crunch of 2007 decimated international markets and pushed the UK into its deepest recession since the Second World War.

As banks cut lending (making it more difficult for buyers to get a mortgage) and the property market began to stagnate, average house prices dropped by 20 per cent over 16 months, whilst transactions fell from a ten-year average of 1.65 million to a mere 730,000 over the 16 months leading to June 2009.

Five years later and the picture remained bleak. The number of properties advertised for sale had fallen by 23 per cent on figures from September 2007, the number of properties sold had fallen by 43 per cent and the number of mortgage approvals had fallen by 51 per cent.

Fast-forward to 2017, and new research by the Savills property company has shown that the UK housing market continues to be shaped by the events of 2007, with lower transactions (around £30bn less than in the previous decade), lending constraints, lower mobility and an increased reliance upon private funding (‘the bank of mum and dad’) for deposit money.

So, what have we learned from the credit crunch and how secure is our future?

The short-term answer to both these questions is debatable. Record low interest rates have led to a worrying upsurge in credit card debt and unsecured loans, with consumer lending levels now exceeding £200bn for the first time since the crisis.

Within this context, a recent report by Moneyfacts for Reuters has revealed that the number of ‘adverse credit’ mortgage packages available on the market has doubled in recent years.

It also found and that demand for such products is steadily increasing, especially in the wake of Brexit (itself an indirect consequence of the credit crunch) and gloomier economic conditions.

In other words, the re-emergence of ‘sub-prime’ mortgage lending represents an inevitable reflection of prevailing market conditions as well as tightening mainstream loan criteria.

According to John Van Kuffeler of Non-Standard Finance, there are currently 12 million people in Britain that conventional banks will not lend to, of whom 2.6 million have incurred problem debts.

If we factor in rising inflation levels and the impact upon real incomes, then mortgage packages that account for credit history pitfalls (from light infringements all the way up to serial default and bankruptcy) seem likely to become increasingly prevalent in the future.

Heightened lender underwriting criteria and affordability testing can help to mitigate the debt risks associated with sub-prime, but there are still concerns within the industry that reckless lending practices could develop new patterns of financial chaos. Only time will tell.

So, are we on the verge of a new credit crunch?

Sub-prime represents just one piece in the overall economic jigsaw puzzle of course, but with rising inflation and debt, falling house prices and a resurgence in ‘shadow banking’ practices in China, vigilance and responsibility need to be heightened if we are to remain financially secure.

Regulation is stricter than ever before, but let’s not take anything for granted- it’s time to open our eyes.

David Edwards is commercial director of Personal Touch Financial Services

Recommended

Subprime could become a success story, writes Whitehouse

If you believe the rumours, subprime is back. A number of lenders are now catering for borrowers with impaired credit history. Indeed, lenders like Bluestone and Pepper have made it clear that they are ready and willing to offer loans to those who have experienced financial problems or difficulties in the past. So is this […]

CoverFeature_House_MS_100517

Cover Feature: Has the sub-prime fallout led to overcautious lenders?

Are regulators and lenders so determined that the market won’t fall back into its old sub-prime ways that they have become too cautious, to the detriment of consumers? It is a decade since the foundations of the mortgage market crumbled, leading to the credit crunch. Ten years on, with lending criteria far more rigid, ironically […]

In My Opinion: Sub-prime 2 – a new dawn

Borrowers with credit blips represent a great opportunity because they really need – and value – professional advice Just when you thought it was safe to go back into the water, sub-prime is back. Well, that is the headline some commentators want you to believe. The truth is the market never disappeared – but it […]

Singapore cover image - thumbnail

White paper — Singapore International Insights

Jelf Employee Benefits assesses key trends within the international private medical insurance provision of organisations with employees in Singapore. Benefit structure, cost management and healthcare facilities are examined and key considerations are highlighted. This edition will be of particular interest to global human resource directors and benefit managers with local and expatriate populations in Singapore.

How to use wills to protect your clients’ wishes

By Ross Jackson, senior protection marketing manager March is Free Wills Month! Free Wills Month brings together a group of well-respected charities to offer members of the public aged 55 and over the opportunity to have their simple wills written or updated free of charge by using participating solicitors in selected locations around England and Wales. Research […]