financial-affairs.com

The makings of the credit crunch can be traced back to the early 21st century. It was at this time that house prices in the United States began their steep rise. The banks who were awarding mortgages to customers were no longer awarding mortgages in the same ways that they used to. Banks began repackaging mortgages and loans as bonds. These bonds were then sold on to third parties who believed that these were very secure bonds. In fact on many occasions the bonds related to mortgages belonging to customers who were very likely to default. This meant that the banks felt there was no limit to the money they could make by selling on these mortgages and because someone else owned the bond they did not have to worry about who they lent money to.

This theory worked fine when house prices were continuing to rise, however, when house prices began to fall and customers defaulted on their mortgages these bonds and loans went sour.   The banks then starting writing down a lot of their losses but not disclosing their full exposure to sub prime debt.  This meant that banks stopped lending to each other because no one knew who was safe and who wasn’t.  IT is this inter bank lending which is the key to banks being able to operate and manage their day to day business.  With this lending disappearing banks stopped being able to lend to customers and thereby perpetuating the fall in house prices. 

In order to buy a house now lenders are looking for a deposit up front which is making it harder for first time buyers to get into the market.  Governments are working hard to try and find means of getting banks to start lending again.  This has included bail out measures to guarantee inter bank loans and boost bank’s balance sheets through purchasing shares.  Ultimately this does not seem to be working as private investors are not giving their money to banks any more as they are worried about the solvency of the banks despite the fact that many are heavily nationalised.  If this continues then it’s difficult to see and imminent end to the credit crunch. 

Fraud is an ever increasing problem in our society today we can all take steps to ensure that we do not become victims of fraud. Millions of pounds a year are lost too criminals from fraudulent operations. It is essential that we take steps to protect our private information and prevent identity theft. Make sure when you throw old bank statements out into the rubbish that you have shredded the statements so that nobody is able to read the details. The cost of a shredder is nothing compared to the cost you may suffer should you become a victim of fraud or identity theft.

When you’re using your card at a cash machine please make sure nobody is able to see you entering your PIN.  You must also make sure to check if there is anything suspicious or unusual about the cash machine you are using. Fraudsters have been known to attach devices to cash machines that will read the data on your card and enable them to clone it. Please also make sure that when you are giving your card to a waiter in a restaurant that we do not take the card out of your sight. They have been known to steal the contents of your card and hand the card back to you as if nothing has happened. You will then log into your bank account and discover that many large amounts of money and been extracted from your account without your knowledge.

Please also be very wary of any unsolicited e-mails arriving in your inbox asking you to give money to participate in a scheme with guaranteed rewards. Remember that if something is too good to be true it probably is. Please also be aware that your bank will not send you an e-mail asking you for your online banking details. Fraudsters have been known to write e-mails pretending to be from banks asking you for your details to, for example, validate your account. You should ignore these e-mails and do not write anything back to them.  These are organized criminals and you should not ever engage with them.

Sharp falls in house prices in recent times mean many are facing the dreaded prospect of negative equity.  Many people have been releasing equity in their homes not just for buying luxary goods but for simply funding their basic lifestyle.  Is negative equity really a problem for everyone unlucky enough to have it however?  If you are managing to hold on to your job and have no plans to move house then you can just sit tight and continue to pay your mortgage - you will not be affected so badly.

If you wish to move to bigger and more expensive home then your options may be limited depending on the figures involved.  For some they may find that the new house is falling at a rate greater than their current home and thereby bridging the gap to the new home actually becomes easier.  This is worth looking into and so you might find that moving onto a new, bigger home in a difficult climate is not the challenge you thought it would be. 

Negative equity does become a problem, however, if you lose your job and can no long afford to keep up with your mortgage payments.  In this scenario the British government is stepping in and helping people by offering to pay their interest payments for a period of 2 years.  This solution does seem viable if the homeowner is able to resume paying their mortgage at the end of the 2 year period.  This is the only government worldwide known to be offering this kind of scheme.  The problem lies if the homeowner is not able to resume paying their full mortgage - in this instance the government’s plan is only delaying the inevitable. 

Seeing an opportunity in any market some property investors are operating a scheme whereby they will by your house for 90% of its market value and rent it back to you.  Fundamentally this means you do not need to lose your home but it does leave you at the mercy of the private investor who could pull the plug on the rent deal whenever they choose so make sure you have the correct legal agreements and lease in place.