First it helps to know the term ‘credit crunch’ means. Credit crunches happen when banks struggle to get hold of money. They are forced to pay more interest on the money they get and pass that onto their clients – us.
The credit crunch affects everyone, even those who do not need credit to pay for food, education, transport or accommodation. Everything is influenced by this because many businesses use credit.
The mortgage market is a strange place right now. While the rates may still fall further, it has now gone into reverse and buyers need to think carefully about buying property.
Banks are not willing to lend much money. Those who are lucky enough to get mortgages will pay more for it, and they will need a larger down payment. Property buyers especially should make haste to get their mortgages approved.
Some of our economists are expecting a recession either later this year – 2008 – or early next year. The growth of the economy has slowed down and the rise in inflation hasn’t helped. Lowering the interest rates may help, though it’s not likely to help much: the money markets are in too much turmoil at the moment.
In just the few months between May and July, nearly 140 000 people were made redundant. This amount makes it the highest rise since the early 1990s – the total stands at 1.7 million and some think it may be 2 million by this Xmas. Workers, especially those from the financial sector all over the world, are being laid off: 7 000 Chinese workers at a toy factory; 15 000 West Java workers; and many Fortune 500s let workers go.
The credit crunch is less harsh on savers; however, even they should be careful: they should make sure that their money is in a safe place. All banks are created equal but some are better than others. One good thing, however, is that banks are trying to attract capital and are offering better rates – 6.5 per cent in some instances.
Most medium- and long-term investments should be fine and those who invest now will get more for their money’s worth. So it’s not really all doom and gloom, even though the media wants us to believe that.