Global Credit Shortage Expensive For UK Banks
Global Credit Shortage Makes Borrowing More Expensive For UK Banks
Mervyn King, governor of the Bank of England, warned homeowners to expect higher mortgage and loan rates because the current global credit shortage is making it difficult and more expensive for UK banks to borrow money.
Many analysts and economic experts are citing the ripple effect caused by the US sub prime crash and the recent credit crunch, saying that the banks had a responsibility to their share holders to increase profits, and that sub prime lending is a mainstay of the mortgage industry, as long as it is managed responsibly.
Consumer campaigners suggest that banks are partly to blame for the debt casualties. Ian Brown of Citizens Advice Scotland said: "I can remember when it was quite difficult to arrange a mortgage, or even an overdraft. Now, lenders are falling over themselves to give you credit. But not enough attention is always given to a customer's personal circumstances. How else could someone who is unemployed be allowed to run up debts?"
Chancellor Alistair Darling suggested a return to "good, old-fashioned banking". He added: "Institutions have in some cases been prepared to lend to people without actually checking if they were ever going to repay it."
This is exactly the fault found in the US market where millions were lent mortgage money without proper credit checks, or even demanding viable proof that the consumer planned to use the money to purchase a home.
Lenders are starting to defend their actions. Brian Capon, of the British Bankers' Association, said: "It is in nobody's interests to lend money to someone who cannot afford to pay it back. But debt problems often arise after sudden, unexpected events, such as illness or unemployment, which a bank cannot predict when it makes its lending decision."
While the global credit shortage is making it difficult for banks to borrow money to lend, it does not explain why the banks birthed the buy-to-let market, and made it easier for indebted students to buy their first home five years earlier than previous generations.
Published on September 28, 2007
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