Is There Credit After The Crunch?

This is obviously going to be difficult! We have all been through a turbulent time and some say we are not through it yet, all sectors look battered and bruised. The private sector has been badly hit and those that have come through the other side (if we are indeed through) are risk adverse, the scar of the recession lingering on and festering like an infected wound. The public sector hasn't fared better but they have only really started to see the pain. Believe you me it's only going to get worse there!

It goes without saying it would be incredibly risky to up sticks and embark on a new career with decent jobs so scarce. For most though, it could be the only way to secure a pay rise, with wages freeze's still common, on top of jobseekers and other benefits to be slashed by the coalition. Combine this with the scarcity of credit and the comfortable situation that arose, particularly in Britain, Europe and US, of owing and being owed high amounts in a cycle of debt. Many find themselves on the remortgage merry-go-round, but the once plentiful remortgage deals have now all but dried up.

Then we ran into Jonathan Davis, a leading wealth management expert and regular media advisor. Who better to expound on what we can expect in terms of money lending trends over the next few years. As we talked it became clear these kinds of wounds take a long time to heal, and it would seem the anaesthetic is only just starting to wear off. "The big picture is that for 30 years, we've had a growing debt problem- not just in the UK but right across the West. That bubbled in 2006-2007, and now we're experiencing the hangover of the debt party. I refer you to the 1930s, and the depression based upon de-leveraging effects following, by then, the biggest debt bubble in history during the 1920s. This time it's from the biggest debt bubble of all time," explained Davis.

Davis continues by looking at the current state of the banks who "are, technically, insolvent themselves. You'd be hard pushed to find a bank or building society in the UK that is solvent, when real assets are taken into account. It's all well and good to have property, but if that lies vacant, and there's a loan outstanding, then it's a loss. Look around in every town, in every city. Look up, and you see To Let everywhere. 10 per cent, or at least 10 per cent of shops are lying empty, then you've got warehouse, office and manufacturing facilities." He goes on, "In other words, you've got an enormous swathe of bad debt coming down the line. That's one of the reasons banks are reducing lending, because they know they will be cutting red ink right across the balance sheet in due course. On top of that they also have the wider G20 issue, of what's called Basel 3, which is a change in the regulations of international banking,"

To try and prevent this all happening again we demand tighter regulation on banks. However it appears that Great British Public are behind the bailout, you and me are again set to foot the bill, the punishment, what did we do wrong? In simple term, which to Jonathans frustration is all I can take the Basel 3 means banks need greater reserves. This means they keep more of their own money locked in the vault and don't lend it out. They lend less. Davis explains that "Basel 3 is to prevent a future bubble emerging, followed by a crash. We're still in one crash right now, and it will continue for years," This still does not sound any better.

From this I can see we can safely assume that lending restriction are going to stay in place for some time to come. One thing I certainly would be interested in is how this all affects interest rates, in terms of are we going to see massive rates just to be able to borrow money? "People are already massively in debt. The amount of debt in society is more than there ever has been. I read surveys from big financial institutions that say if the cost of living goes up £100 per month, people couldn't afford to live- that's how bad it is,"

"So, I don't believe, in fact I cannot see that people will be getting even more into debt, simply because society is already maxed out. The banks are actually discouraging folk from taking on more debt by increasing interest rates, way beyond the base rate- really it's all they can do, it's not because they want to."

"So the trend in the future will be that people will not be taking on more plastic credit, they will not be increasing consumer spending, they will not be taking on mortgages, because they simply can't. It all goes back to the original hypothesis, which is that the banks have got no money. We currently have the lowest number of mortgages getting taken out for ten years, and that will be a trend across the board.

Davis (and practically everyone else we talked to for that matter) were pretty disparaging of the TV advertised loans sector, payday loans, cash for gold etc, "If you're talking about over-priced, bad loans, they will always be advertised on TV, and they will pick up market share. But really once you start dealing with those types of businesses, you're on a hiding to nothing- they'll just take your house off you for the sake of a few thousand pounds." It's no wonder they have such bad reputations, it should be a crime they get to advertise at all, thankfully though most see through the veneer and don't fall for it, though there will always be a few who do or have no choice.

It will be an imperfect and imprecise art trying to predict the future, but the reasoning behind Davis' predictions is grounded in common sense, the gravy train was going to come off the rails at some point with hindsight. It's a culture shock, one we have no choice but to get use to, but the long term benefits on people's attitudes to spending and budgeting can only be a good thing. Is there credit to be had after the crunch then? No, well yes, there is, but the way to success and better finances is by reducing debt and overspending then plugging the gap with credit lines to keep level. If you're stuck, just man up, admit you have a problem and get much needed help.


------

Timothy Frodsham works for JustRemortgages.com who aim to find you the best remortgage deals and remortgage rates in the market. Simple really!