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Credit Crunch Essay

720 words - 3 pages

Credit Crunch

An economic condition in which investment capital is difficult to obtain. Banks and investors become wary of lending funds to corporations, which drives up the price of debt products for borrowers.

Credit crunches are usually considered to be an extension of recessions. A credit crunch makes it nearly impossible for companies to borrow because lenders are scared of bankruptcies or defaults, which results in higher rates. The consequence is a prolonged recession (or slower recovery), which occurs as a result of the shrinking credit supply
The global credit crunch, which has dominated financial news headlines over recent months, continues to wreak havoc across the UK. ...view middle of the document...

Since last summer, before the credit crunch took hold, the number of mortgage products has plunged by two thirds, leaving consumers with very little choice. First time buyers have been badly affected, and this is as a result of lenders withdrawing 100% and 125% mortgages, which have always been popular amongst first time buyers with little or no deposit. The situation has been made even worse by lenders now demanding a far higher deposit than the traditional 5% in order to access their best deals, with some lenders asking for as much as 40% of the property value by way of a deposit in order to access competitive rates.
Those with bad credit have also been hit hard, as lenders are being far more cautious about who they will lend to, and those with damaged credit face an increased risk of rejection due to the credit conditions caused by the global credit crunch. A combination of these cutbacks and changes in both the mortgage and the general financial markets has resulted in severe difficulties for many people, and industry experts, including banking officials, have stated that...

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