Turmoil in financial markets to affect the UK
January 29, 2008
The current turmoil in the financial markets, which was sparked in the sub-prime sector in the United States, is already having and will continue to have an adverse effect throughout the UK according to one industry professional. Professor Willem Buiter, who is a Former adviser to the Bank of England and former member of the Monetary Policy Committee, said that the UK mortgage and lending markets were already feeling the effects of the credit crunch that has been sparked by record levels of defaults in the United States’ sub-prime sector.
Those with damaged credit ratings in the UK could find it particularly difficult to get credit of any kind, with many lenders clamping down and becoming far more stringent with their checks. Some lenders have had to withdraw some of their sub-prime products as a result of the turmoil, and others have hiked up their interest rates way beyond the base rate, decreasing affordability even further for those with a tarnished credit history.
With inter-bank lending rates rocketing as a result of the credit crunch, as well as increased fears from lenders, many consumers could find themselves left out in the cold when it comes to getting credit.
The professor stated: “The extent to which this translates into higher rates being charged to households and mortgages or hire purchase loans or higher loans to businesses in the real economy, that, I think, is an open question. The longer it lasts, the more likely it is that all rates from deposit rates to mortgage rates to loan rates will, ultimately, in the private sector get pulled up to that level.”
He also added that it was impossible to tell how long the turmoil would affect UK markets, stating: “It is a new type of crisis - it is not an old fashioned banking crisis. We don’t know how long it is going to last. Gradually clarity will dawn, but how long it will take, it could be weeks, it could be a few months.”
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