Foreclosure wave sweeps America
Darren Shaughnessy, Director Kings Residential, Estate Agents in Manchester and Letting Agents in Manchester writes:
The BBC news website is running a very interesting article on the crisis in the USA.
http://news.bbc.co.uk/1/hi/business/7070935.stm
If you take a look at this I think most people will see that something pretty extraordinary has been happening in the US. Lenders have been lending money to people who were destined to default. They simply had no hope of being able to afford these houses in the long-term once gtheir initial short-term fixed rate expired and they returned to normal rates. The extent of the problem has been so great that in some neighbourhoods 1 in 5 houses have been repossessed.
Mortgage brokers and Independant Financial Advisors in the UK have been criticised for mis-selling in the past but the market is very tightly regulated now. The US scenario just is not going to occur in the UK. However, this does not mean that it will not impact the UK. Much of the sub-prime lenders have packaged up their poor quality sub-prime debt along with some better debts and sold them on, thus reducing their exposure but increasing the exposure to the purchasers of this debt. The purchasers are all large financial institutions and are based all over the world including the UK.
We keep hearing the phrase “Credit Crunch”. This refers to the fact that many financial institutions are becoming reluctant to expose themselves to bad debt and so are becoming more careful about who they lend to. This means less credit is available and inevitably that the price of this credit will increase.
What we should not presume is that because huge numbers of repossessions are occuring in the USA that the same will happen here.