Feeling the effects of the sub-prime crisis

Posted 2007-11-20

Credit limits are feeling the pinch as the global financial crisis continues to make demands on banks and lenders.  The Daily Telegraph newspaper reports that borrowing limits are being cut by credit providers, even for those customers who have previously shown good repayment habits.

Credit company Goldfish admits to having cut limits for a “small” number of customers. 

The current crisis was triggered by the collapse of the sub-prime mortgage sector in the US, which saw many homeowners defaulting on their repayments. It was soon revealed that major financial institutions had purchased the debts and would be facing large losses as a result of the market collapse.

Banks responded globally by raising the rates at which they were willing to lend to each other. By now, the situation has filtered down to street level, where the average person is feeling the effects.

Prospects do not look promising for the future and further credit upheaval is expected in stock markets around the world. Expert opinions concur that the consequences of the current crisis will continue for some time. 

At home, London’s FTSE index felt its biggest drop since August following predictions by investment bank Goldman Sachs that rival corporation Citigroup would be facing big losses as a result of the US sub-prime mortgage collapse. Citigroup had been highly exposed to the US sub-prime market – the company saw its shares fall 6% yesterday as a result of the prediction.

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