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What does the credit crunch mean for me?
Former Member
Posts: 1,876,323 The Mix Honorary Guru
It's dominating the news at the moment but I don't really understand what the credit crunch/possible recession means for the average person.
I can certainly see the effects already, my food shopping bill has gone up and I work in a club that is practically dead as are many clubs I've visited recently because people say they can't afford to come out. However, I just don't understand what the repercussions are going to be in my day-to-day life.
I was told by one person that there are a lot of redundancies in the City at the moment and the media and entertainment industries will be hit because people need to pay their council tax but don't need to go out etc.
I'm about to graduate and all of this is making me worried because of the job market etc. I should know better as a journalist about the media scare tactics but from what my family have told me and my dissertation topic about the recession in the 80s it all sounds rather depressing and painful.
I must add though that the guy that told me about the city etc said that it's good for me though because by the time I get a well paid job house prices will be perfect for me.
Anybody care to enlighten me about this situation and how it will be affecting us all.
Thanks!
I can certainly see the effects already, my food shopping bill has gone up and I work in a club that is practically dead as are many clubs I've visited recently because people say they can't afford to come out. However, I just don't understand what the repercussions are going to be in my day-to-day life.
I was told by one person that there are a lot of redundancies in the City at the moment and the media and entertainment industries will be hit because people need to pay their council tax but don't need to go out etc.
I'm about to graduate and all of this is making me worried because of the job market etc. I should know better as a journalist about the media scare tactics but from what my family have told me and my dissertation topic about the recession in the 80s it all sounds rather depressing and painful.
I must add though that the guy that told me about the city etc said that it's good for me though because by the time I get a well paid job house prices will be perfect for me.
Anybody care to enlighten me about this situation and how it will be affecting us all.
Thanks!
0
Comments
http://news.bbc.co.uk/1/hi/in_depth/business/2007/creditcrunch/default.stm
A lot of it down to 9/11, a lot of it down to irresponsible lending from the US banks who are now having to write off phenomenal amounts of money that they will simply never get back.
I'm also praying for a house price crash, especially if I want to get on the property ladder in London...
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/26/bcncrisis126.xml
I have a shop in a run down area and have certainly noticed that sadly people on low incomes have much less money to spend even on essentials. Some of the better off could be just hanging on to their money because of the media planting fearsome stories. I can't see house prices falling a great deal because there is a shortage of housing stock and prices are based on supply and demand, some houses are unrealistically priced and these should become cheaper. Banks should help the first time buyers to buy homes and more affordable housing needs to be built, then prices might come down.
This means that companies that don't have a large capital backing are likely to struggle. Those that are funded through loans are likely to struggle very badly as they cannot renegotiate those loans on to cheaper deals. This means more of their profit will go to repaying loan deals, meaning that they are likely to make people redundant to cut staffing costs and maintain profit margins.
This will affect small businesses the worst, but there are some very big companies (e.g;. Boots) which have been bought using loans and the owners will want to maintain their profits by cutting costs. That means sacking people.
At the same time as redundancies will be going up, meaning there are fewer people earning, those that are earning will find it very hard to get a competitive mortgage deal. If mortgages are more expensive, and if those without 25% deposits can't get mortgages, then people will be unable to buy houses. The property market is demand-driven, meaning that if nobody wants to buy then prices will come down.
Buy-to-let landlords are likely to flood the market in the next few months due to falling demand, higher costs of lending, and the fact that the tax rate has been cut to 18% from 40% for capital gains. This will force down prices further as there will be more supply than demand.
Combine more expensive lending with falling property prices, lower wages and unemployment, and people are going to find themselves in negative equity very quickly.
The economy is driven by confidence and that's why you get boom-and-bust. People buy into confidence and spend too much then they panic when things turn downwards and try to ringfence what they have. Those in the entertainment sector and retail sector, including pubs and clubs, will struggle as people refuse to spend money in order to protect what they have.
The whole recession will blow over but what concerns me is that the media are talking up a recession. If you keep telling everyone that the shit has hit the fan then they will panic and that will cause the economy to spiral downwards. That's what did the Northern Rock- if the media hadn't talked up the crisis needlessly, the run on the bank would not have happened, and the Rock would still be solvent.
what the credit crunch means for the average joe is
- more layoffs especially in finance, retail, and leisure sectors
- holidays will be too expensive because of the falling pound so it will be a trip to the lake district instead of lake tahoe
- house prices will fall but you still won't be able to get a mortgage, so they will keep falling
- government spending will fall drastically because the rest of the world won't lend us a pot to piss in, so public sector workers will keep on getting screwed, and essential services like the nhs will only get worse, i expect benefits and other welfare spending will also get cut, state pension age will probably go to 70+
- banks stop lending, cut overdrafts, cancel your credit cards, so people will have to live within their means and for some that means a drastic change of lifestyle, you won't be able to MEW your way out of debt anymore to pay for all the little luxuries
Yes, a few thousand people will lose their jobs, mostly in finance. However most will be able to get something new - I've had mates in banking who got fired and didn't take them long to get another job, admittedly at a less prestigious firm, but it's still a good job. Other senior bankers in their 40s getting fired can just retire. So overall, unemployment rates will not massively change.
Yes, people's houses will go down in value. But it will just re-correct the enormous ramp up in house prices people have had over the last decade. Overall, the house price crash is a very good thing for ordinary people - many more than before will be able to afford to buy a property now (in a couple of years when the correction is over and mortgage rates are sensible again).
Yes, your food etc bills may go up by a few quid a week. For most this may mean a small reduction in your disposable income, or you just become a bit more price-conscious when buying stuff.
But overall, in the grand scheme of things, the credit crunch means fuck all for the vast majority of Britons. During the Tory government's economic fuckup in 1992, most families carried on fine as usual.
this is exactly what they were saying in america this time last year, it's contained! the revised ISM and unemployment figures coming out each month there don't look so pretty anymore, the GE miss on Friday was about the best confirmation of a recession you can get and the rest of Q1 earnings are going to be ugly....and it's going to be worse over here i'm afraid, our housing cycle is about 9-12 months so let's come back to this thread in a year eh, the early 90s will look like a walk in the park..
the media is making such a big deal to get everyone used to the idea early, and try and blame america to stop everyone rioting when they figure out how badly our government has fucked things up.
This isn't America - we don't have tens of millions of "sub-prime" people here with ridiculous mortgages they have no hope in hell of paying, sub-prime/CDOs was largely an American phenomenon. Just like the majority of middle-class Americans will be in the grand scheme unaffected by the US going into recession, the majority of Britons' day-to-day lives will be pretty unaffected.
That said, over the last couple of months in particular I've seen a massive change in attitudes largely from friends suddenly fed up of London/UK, and they're plotting seriously emigration having only just graduated!
we have higher public and private debt per capita, and there has been some pretty lax lending in recent years i nearly did the whole BTL thing and the amount of dodgy brokers who could get you 95% LTV self cert mortgages was pretty amazing, i guess we'll see how bad it is when recent buyers start slippping into negative equity.....as for CDO, well the Americans exported their crap around the world which is why the global credit markets are frozen, German, Japanese and Swiss banks writing billions off suggest this is not contained....one thing you need to understand is that if the banks can't package mortgage loans up and sell them to foreign investors then they don't lend the money full stop, and noone is buying this crap anymore, we are no safer than the US.
Thats about right. I've seen a rise in some prices (esecially for food) apart from that I'm lucky as I still live at home and a decent wack of savings to cushion me if I cant get a job once my current temp contract ends. The house prices are starting to dip as well (and I live in a area of sussex where prices have massivly increased in the last few years). Its starting to look possible that I might even be able to get onto the property ladder sooner rather then later.
UBS and Credit Suisse or whoever writing off billions in writedowns (which was mostly due to their exposure to US subprime, not European) means jack shit for the typical Briton. Yes there are significantly less mortgage products available for new homeowners, but this just means there are still a sensible range for people who can normally afford it, and people who shouldn't have a mortgage will just have to rent instead. In the grand scheme of things, the vast majority of 60m Britons will not be affected by the credit crunch! If anything, the enormous drop in house prices will be more a good thing than a bad thing, in a couplea years millions who previously couldn't afford a property will not be able to!
lol no because mortgage rates haven't changed all that much yet here, but they will as demand for the long end of government bonds plummet.....i agree house prices falling are a good thing, but the secondary effects is what i'm more worried about. go look up what percentage of private wealth in this country is housing, and then tell me how many britons will be affected.
ETA: your right that the bank write downs so far have been due to defaulting tranches of debt in the US CDO market, so we still have all the write offs to come from the British, Irish, Spanish, Australian markets and anywhere else with a ridiculous house price bubble.
If people are able to maintain their income level and so maintain their mortgages, then a fall in house prices will mean very little. It doesn't matter how much your house is worth, you will not have a problem whilst you can afford your mortgage.
The problem is, like in the 1990s, there is a very real danger that people will not be able to afford their mortgages. Already homelessness applications are rising after people have had their homes repossessed. Repossessions are up because people are finding that they cannot afford their mortgage any more now the LIBOR is through the roof.
Unfortunately more people will be trapped in negative equity than in the 1990s, anyone who has loan-to-value of more than 90% is in serious risk of negative equity, at least in the short term. And that is an awful lot of people, far more than were in the 1990s.
The LIBOR rates are not just tied to the mortgages though. The average person has debts of around £10,000, before mortgages, and this Government has put £15,000 of debt on an entire generation of students. Already the cost of that borrowing is increasing- both in the private sector and through the student loans company- meaning that people will have much less disposable cash and may even face bankruptcy.
Things are going to get worse before they are going to get better. I think trying to claim that things are not going to change for most people is hopelessly naive. I think most people will keep their homes and keep their jobs, just as in previous recessions, but people really will have to tighten their belt.
That tightening is going to have a huge impact for many people in service industries, not just banking, and I wouldn't be surprised to see many retail and call centre staff lose their jobs. There are a lot of big companies which have been taken over using leverage and when those deals can't be renewed the shit will hit the fan.
House prices falling is only good if you do not own property. Most people do own property and their pockets will hurt very badly.
The AVERAGE adult, or family in Britain, earns a bit more than they spend. With this credit crunch, that gap in disposable income may reduce a little bit. Maybe some will have to tighten their belts and look for the offers at supermarkets, and buy £10 not £20 bottles of wine. But in the grand scheme of things, all that is really not a big deal. The number of people who will see a serious impact, such as their houses repossessed, will be small, and not a representation of the typical Brit, which the OP alluded to.
When it comes to signing for you have agreed to buy ...the house is worth ten grand less than it was at the time of agreememnt. Haggle haggle haggle comes into it then.
The poor sod who is selling you the house may well have to accept the lower offer ...to enable them to purchase the one they have agreed to buying.
The average adult in the UK has £10,000 of debt, excluding mortgages and student loans through the SLC. That is a fact.
If the cost of that lending goes up, which with the LIBOR at its highest levels for 20 years it will do, then suddenly a lot of families will find themselves spending more than they earn.
If you're not earning enough to service your debts then you're in trouble. Things are likely to run away from you very quickly. Even if you keep the house and have enough income to repay debts through a debt management plan, you will suddenly be leading a very frugal existence.
And, of course, by spending less you will be contributing to the recession.
Many big high street stores were bought with an awful lot of leverage. At the same time as turnover drops the cost of servicing that leverage will increase. That will inevitably lead to redundancies.
Even Martin Lewis of moneysavingexpert.com, a man not prone to hyperbole, reckons that we're in for a tough time of it for the next 3-5 years. I'd belive him if I were you. I do, which is why I am repaying my debt as fast as I can.
Absolutely. Companies offering non essential services the most are going to feel the crunch the most. Especially those with high overheads.
I may be completely wrong, just seem pretty relaxed about this whole thing. I'll personally suffer a bit, as will most people, but from a relative standpoint most people retain the same socioeconomic status so it shouldn't be too disastrous.
A recession is not normaly acompanied by rocketing prices.