If you were lucky enough to catch the Panorama episode entitled ‘How the Economy got Personal’ you should already have a pretty good understanding of the topic that I wanted to highlight in this post. Over the weekend the main headline across the news was in regard to the statement made by the Chancellor Alistair Darling on just how serious the current crisis hitting our economy actually is and also how much of an impact it is going to have on our lives in the ‘long term.’ I believe that by ‘long term’ the chancellor is stating that this economic downturn will last for 4 to 10 years. So what can we do and how can we prepare ourselves to last the course? First of all it’s always good to have background knowledge on a subject that is going to affect your life directly, so if you haven’t heard about the credit crunch by now I have written a quick overview to get you up to speed ;-) The following list roughly relates the history of our current credit crunch - 1 Several years ago the world economy grew at a rapid rate and there was a lot of surplus cash floating around. The banks wanted to capitalise on this and decided to lend it to people mainly from Florida and California who hadn’t owned properties before (Sub Prime Lending). 2 The banks sold their mortgages to other banks and the chain continued to grow globally. 3 Interest rates rose. 4 Housing prices began to fall. 5 Investors realised this no longer looked sustainable so they started to jump ship. 6 The banks realised they were in big trouble and stopped lending to one another. 7 The first victim of the crunch was Northern Rock who could no longer borrow money to fund their lending so borrowed the money from the Bank of England. 8 House prices continued to fall, 9 Interest rates continued to rise further 10 The credit crunch predominantly affects businesses, property owners and first time buyers. This information became highly relevant to me as I am one of many people in the UK who is struggling to get onto the property ladder. Over the pass 3 years I have been saving my hard earned money consistently in the hopes that I would be able to buy my own property. This was one of my many goals that I have had since I was younger. At the beginning of 2008 a great opportunity came my way where at last I found a beautiful new build luxury home. However due to the credit crunch it couldn’t come at a worst time. With interest rates now souring over 6%, average first time buyer loans requiring over £30,000 as a deposit and continuing house price decreases it’s a first time buyer nightmare. These are the stumbling blocks you will have to manoeuvre over before you reach your goal. On average property prices have fallen by £20,000 so the question is should you buy now in this market or should you wait? If you’re a first time buyer and have enough deposit to take the first leap, then I would recommend that you get on that step on the ladder. The housing market is at the top of the slide and will keep decreasing at a fast rate. As they say, what goes up must come down. You should try and aim to save as much as you can and lower your outgoing as much as possible. If you do have the opportunity to lower your outgoings by living with relatives while you buy, you could rent out your property. This will cover the mortgage if you plan it right, and may give you a little extra in the process. If this is not an option then finding a tenant for your property could help to generate more cash flow. If you’re currently looking for a mortgage this year the Abbey has been the leading lender for competitive mortgages. As for myself I am still deciding on whether buying a new build property is the best choice to make in the current climate but if you are lucky enough to find a really good offer make sure you take the plunge. |