How the credit crunch has changed the way that we borrow

Four years on from the credit crunch and it is still much more difficult to obtain many finance facilities when compared to the four years before the credit crunch. This increased difficulty has seen many of us change the ways in which we manage our finances and borrow money, which has led to some of us managing our finances and adjusting our lifestyles, so that we borrow less or not at all, or seeking out alternative methods of finance.

The credit crunch was responsible for the demise of the 100 percent mortgage and 4 years on first time buyers are still required to find 10 to 15 per cent deposits if they wish to purchase their first property. Many first time buyers are unable to find such large deposits, and most of those who do, do so with help from their parents or other family members. Because obtaining a mortgage in order to buy a property is so much more difficult this has led to a large increase in the number of people requiring rental property. This increase has led to a shortage of rental property being available and consequently the rents being charge have risen. The credit crunch has therefore led to less people buying their own homes and more people renting.

Low interest rates, in order to help the economy, have the negative consequence that savers receive very little in the form of interest payments on their money deposited in savings accounts. In addition the stock markets have also been performing badly leading many investors to look for alternative investment options. Consequently there has been a rise in the number of people investing in property, attracted by the low property prices and high rental incomes that can be achieved. This has in turn led to a rise in the popularity of buy to let mortgages, which has been helped by some lenders who like lending to this market because they too are attracted by the rock bottom property values and high rental returns.

Due to the property market being depressed it can be very difficult to sell a property, which can be additionally annoying when there are so many great buys to be found. In order to speed up a move and take advantage of a great deal, whilst not wanting to sell an existing property too cheap, there has been a rise in the number of let to buy mortgages being obtained. By taking out a let to buy mortgage, people are able to move at a convenient pace, maintain ownership of their existing property, perhaps until a time when the property market improves and prices increase, whist in the meantime taking advantage of the high rental incomes that can be achieved.

Also to help facilitate house moves there has been a rise in the use of bridging loans in order to help maintain sale chains in a less than perfect property market. In addition bridging loans have also been increasingly used to raise short term finance in place of overdraft and other finance facilities that have been more difficult to obtain. This is because bridging loans offer more flexible lending criteria, so when other finance options have been declined some people and businesses are turning to bridging loans.

Short term loans have also seen an increase in popularity through methods such as pay day loans and asset based loans which is basically modern day pawn broking. Asset loans can raise quite considerable sums of money provided the applicant has a suitable asset or assets that they can use as security. Acceptable assets can be cars, boats, planes, vintage cars, jewellery, gold, fine art and antiques. Short term loans of up to £1 million can be raised this way.

Many businesses use commercial bridging loans when they need to raise short term funds quickly, but they can also use asset refinance in order to release capital tied up in any equipment, machinery, vehicles or other assets that they own. Asset refinance is particularly useful because it can be arranged quickly, has a high acceptance rate and payments can be spread over longer terms, possible up to 5 or even 10 years.