Charles on… anything that comes along

Have you noticed how mortgages are disappearing like snows in spring sunlight? Take a look at Money Guardian:

Some borrowers coming to the end of two- or three-year fixed-rate deals could currently be on a rate of 4%. This type of deal is now non-existent.

“Non-existent”. But it’s actually worse than that. The number of mortgage products available has shrunk from 7,726 to 5,700 - that’s a 27% fall, and in some cases mortgage lenders have simply withdrawn fixed-rate mortgages and are only offering variable-rate mortgages linked to the Bank of England base rate (or possibly, worse, Libor - the London Interbank Overnight Rate, which I first heard about in Michael Lewis’s Liar’s Poker: the trainees on their first day, in front of the chief executive at whichever investment bank it was were asked what Libor was. Woe betide if you didn’t know).

OK, so cheap mortgages are gone. And you know what’s next? Cheap credit cards. Credit cards that increase your credit limit endlessly when you spend more on it. That’s over. I don’t need to talk to City folk to feel this happening. You can see that it’s going to happen, like A following B: big-ticket credit (you can call it a mortgage) gets tight. Then small-ticket credit (call it credit cards) gets tight. I think that 0% transfer deals are already dead.

Which means that people who have spent the past ten years or so living off cheap credit - for flat-screen TVs, gadgets, gewgaws, shoes, clothes and of course don’t forget student debts… - are going to get a sharp, sudden shock as the tap is turned off.

That’s going to be ugly. But there is one small recompense: those who have been living off cheap credit are most likely the people who have found it impossible to get onto the housing ladder which has been infested with buy-to-let purchasers taking advantage of the tax breaks that buy-to-live people couldn’t. Which means, once they’ve waited for house prices to crash (yeah, let’s use that word) and saved up the 10% deposit that they’ll need, while having paid off their credit card debts, that they’ll be able to think about buying a house. If that’s what they still want to do.

But face this: the era of cheap credit is dead. It was fuelled by cheap lending generated from the US property market, leveraged by 20, 40, 60 for every dollar actually paid (or lent). Unsustainable, and now over as the banks try to regroup to discover some real money down there amidst all the paper promising to pay the bearer just as soon as it has figured out who actually owns the cash.

The credit crunch is nine months old, but it’s barely beginning in the effects it’s going to have on society.

These posts might be related (the database thinks..):
• Why credit goes bad, and how bankers make it happen (8 December 2008; score: 35.97%)
• Why Northern Rock hit the rocks but no other UK lender did (17 December 2007; score: 35.89%)
• Yeah, sure, just send the phone anywhere. Who cares where they say they live? (6 March 2008; score: 32.73%)