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The Credit Cruncher was conceived to help you to keep up to date with credit crunch and recession developments, it provides some helpful credit crunch advice and it addresses personal debt. The Credit Cruncher also seeks to explain how the credit crunch started and shed some light on the worldwide recession. Recently, we have begun to look at how BREXIT will affect the UK economy. Please feel free to leave comments where relevant.

2 Jul 2008

How long will the credit crunch last?

This is chief amongst the questions that I have seen asked about the credit crunch.
In reality, there is no way of knowing how long this current situation will last, and seeing as there is no defined way of measuring 'the crunch' itself, you won't actually know when it's over. It's more of an adjustment than an actual event.
The current difficulties were primarily brought about the problems with the sub-prime mortgage market impacting on the reserves available for lending - It has been accentuated by rising prices (especially fuel) and static wages, and also 'fueled' by the general acceptance of credit as a way of life and persistent overspending on credit.
In the UK, mortgage rates are linked to the Bank of England base rate which is currently reasonably stable. The problem with lending is that the financial institutions have suffered from overselling mortgages in a declining market, and they don't have the capital reserves to lend out. House prices are fairly stable, it's just that houses are not selling... This tells us that first time buyers are finding it more difficult to get 100% mortgages, now I have to say that compared the the situation where 100% mortgages were freely available in a falling market - that's actually NOT such a bad thing. The people in trouble will be those that took these mortgages and find themselves unable to meet the payments.
What can we do? Well, we can make budgets and NOT spend more than we earn, pay off our debts so that we are financially healthy - this will have the impact of slowing down the economy and people are going to lose jobs... this is inevitable.
So how long will it last? put it this way, how long have governments been trying to stave off the inevitable (just so they wouldn't get the blame and lose the next election?). I estimate they have been trying to 'fix' this for two to three years - I would not be surprised if it takes two or three years for the economy to be able to rise again.
Don't be fooled, our economy works on rises and falls, the only time there is a real problem is when governments try to intervene to prolong a rise when they should just let the fall happen.

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