The Bank of England predict financial hardship to come in 2008.
As we enter the New Year the outlook isn’t good; the financial prospects for 2008 look bleak with more financial turmoil expected over the next few months.
This week the Bank of England released the results of its Q4 Credit Conditions survey summarising the patterns of secured and unsecured lending over the past 3 months and predicting financial movements for the first quarter of 2008. Unfortunately the news wasn’t good.
Across the board lenders have started to tighten their belts, raising interest rates, restricting lending criteria, refusing more loan and mortgage applications and introducing harsher penalties for those who are unable to meet repayments.
What’s more, many predict this new cautious approach to lending will continue well into the first three months of 2008. Something that the Bank of England believes will leave many facing insolvency as credit becomes less available.
This is especially the case for homeowners as 2008 will see almost a million households coming to the end of their fixed rate mortgage deals. Those who previously enjoyed relatively low interest rates could well have their finances tipped over the edge once they return to paying their lenders SVR. This situation only emphasises the need for homeowners to start shopping around for a viable alternative so they have an affordable deal ready to takeover when their fixed deal comes to an end.
However, it's not all doom and gloom; some analysts believe that as the Bank of England carried out this survey during the worst weeks of the 'credit crunch' (namely the end of November/start of December), the predictions could be unnecessarily pessimistic.
Despite this there is a considerable amount of pressure on the BoE's Monetary Policy Committee to drop the base rate further when they meet next week in a bid to ease the financial pressure experienced by UK businesses and households alike. At the beginning of December they unanimously agreed to drop the base rate from 5.75% to 5.5% to try and stabilise the economy, the first move of this nature since August 2005.
While nothing is set in stone, after their credit survey's bleak results it's hard to imagine why they would put off this important decision until February.
