| In recent years it has been easier to get a loan | | | | This all had a big effect on the American stock |
| or credit to fund a new car or whatever else you | | | | market which in turn negatively influenced |
| fancied. But now it's all changed and times are | | | | economies around the world. The banks suddenly |
| definitely harder. The change started when the | | | | did not want to lend money any more to anyone |
| number of repossession of homes in the US | | | | that could be considered higher risk and heavy |
| suddenly started to rise during autumn 2006. The | | | | lending restrictions were put in place. This has |
| effect of this has had a knock on effect across | | | | transferred over to the UK where the number of |
| the world and sparked a global financial crisis in | | | | house repossession in the last year has also risen. |
| 2007. | | | | However sub-prime lender in the UK accounts for |
| The crisis came about when people in the States | | | | only 6% of all lending where as in the US it |
| started to default on mortgage payments that | | | | accounts for 20%. Despite this there have been |
| they could no longer afford. Due to the relatively | | | | heavy crackdowns who is eligible to be lent |
| high level of prosperity banks had been lending | | | | money. |
| money to people who had poor credit histories | | | | The banks are in part to blame for this crisis, with |
| and were considered high risk. In order to | | | | the Financial Services Authority (FSA) taking |
| minimise the risk banks, charged higher interest | | | | action against 5 brokers, after their review of the |
| rates for these loans to ensure that they would | | | | mortgage market last year. In addition the FSA |
| get the cash back. Borrowers began realising that | | | | found out of the 34 brokers they monitored one |
| lenders were open to them, and were enticed by | | | | third failed to properly assess if the consumer |
| the rise in housing prices, so took out a mortgage | | | | could actually afford the loan. Consumers were |
| to get on the property ladder. However in | | | | being asked to fill out self certification forms |
| 2006-2007 housing prices in the US started to fall | | | | stating their income, but no further checks were |
| which has lead to a difficulty in re-financing homes | | | | made to validate these figures. Consumers |
| for more favourable rates. People were therefore | | | | wanting to borrow more money to keep up with |
| stuck with expensive mortgages that they just | | | | the ever increasing prices of the house market |
| could not sustain over the long term. | | | | may be tempted to inflate their earnings just to |
| Mortgage defaults were quickly responded to with | | | | get on the ladder without thinking about the |
| repossessions, and people started to lose their | | | | consequences. |
| homes. By October 2007 the rates of | | | | The situation we have now been left with in the |
| repossessions were three times higher than the | | | | UK does look bleak. Mortgages are harder to |
| number in the same month of 2005. By January | | | | obtain and have higher rates, however this may |
| 2008 this had risen even steeper by another 5%. | | | | prompt a slowdown in house prices rising which |
| During the whole of 2007 1.3 million homes in the | | | | would help more people actually be able to afford |
| US were repossessed, leaving the banks with a | | | | their own home. |
| deficiency of between $200 and 300 billion dollars. | | | | |