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Credit Crunch

Over the last few months, virtually every paper has the words credit crunch printed, so lets explore what exactly this means.

The most publicised area has to be mortgages and Northern Rock. Well if you happen to have a mortgage with Northern Rock then you will know its business as usual. If the situation at Northern Rock does deteriorate then chances are all their mortgages (commonly referred to as the mortgage book) will be sold on to another lender. As mortgages are regulated contracts, the terms and conditions cannot be changed so the process should have very little impact on you as the customer.

Are house prices falling?

Falling prices could see a rise in first time buyers for the first time in several years. Experienced landlords will also look to increase their portfolios so demand could actually increase. If you are looking to buy and sell then as long as prices fall in line with each other then the net effect should be neutral. In fact, if you are buying a more expensive house it could work to your advantage! Falling prices only become a major problem when you are selling and not looking to buy at the same time or if you need to release equity in a property that is no longer there.

Looking to remortgage in 2008?

Well there are still plenty of good mortgage deals out there. Over the last few months lenders have been tightening up their criteria so the most important factor now is getting independent mortgage advice. An independent mortgage adviser will not only sift through the thousands of deals from the entire mortgage market to find the most appropriate product to meet your needs, but should also go back to your existing lender to check which deals they are offering customers. Independent mortgage advisers have access to deals that are not always available to the public direct, which again ensures that you are getting the best of the best deals available.

January to March are traditionally prime times for debt consolidation. People tend to over indulge at Christmas and reality hits in the form of credit cards bills in the first 2 - 3 months of the year.

What consolidation options are available?

One cost effective option is credit cards. Not a traditional deal, but a 0% balance transfer one. A typically fee of around 2-3% is charged, and you can repay the debt, interest free over several months, or even in excess of a year.

Another option is personal loans where interest rates can be less than 7% per annum, compared to around 15% on credit cards. This also puts a firm structure to your repayments which can benefit those who need the discipline.

It is still possible to consolidate these debts onto your mortgage providing you have the equity. Mortgage products are a lot more flexible than they used to be. You don't necessarily have to take the extra borrowing over the same period as your original mortgage. Many lenders will allow further borrowing (often referred to as a further advance) over a shorter period of time, and by reducing the term of the loan, you are reducing the amount of interest you pay. Flexible deals will allow you to overpay, so you can reduce the extra debt even quicker. If you are not tied into your current deal you can look at remortgaging to another lender at the same time.

So is it financial doom and gloom for 2008?

Not at all, there are still plenty of options available whatever your circumstances. Falling house prices mean there are property bargains to be had, competitive 0% credit card deals are available to reduce outgoings and if The Bank of England base rate falls again, many mortgage payments will decrease. The key to cracking the credit crunch is getting sound independent advice in all areas.

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