Credit crunch over? I don't think so

It seems that no matter what the Bank of England does, the market does the opposite. The slight problem with this big hand out to the banks is that it will not be passed on to their customers, i.e you and me.

It is very unlikely that the mortgage rate that we all pay will suddenly drop, far from it. It is also highly unlikely that the banks will joyously tell us that the credit crunch is over, and we can
all go back to where we were, living off debt. The more reasoned response is that the banks will shore up their badly hit balance sheets with these government bonds to repel any takeovers, and they will simply lick their wounds for a couple of years. Very little of the extra £50 billion will actually be passed on to normal customers. The banks have learnt a sharp lesson, they lent on very poor credit decisions, and this will reflect in their underwriting for some time to come.

Only yesterday, a leasing company announced that it was pulling out of financing certain leisure equipment. The reason I would guess is down to problems they have experienced. There will be other leasing companies that will follow this path over the next few months, in fact, a large leasing company has recently changed its underwriting policy greatly on new starts, and the rate on which they will now consider them.

The market is simply re-adjusting to the new market conditions, and will continue to do so for at least the next 6- 9 months. As with any change, you have to adapt quickly to survive, and that is what we all have to do for the rest of the year. I apologise for the slightly gloomy outlook, but reality is something we have to face.
www.oaklease.co.uk

Leasing, a silver lining

For the past 3 months, the news is still the same, but another word is creeping in now, inflation to join credit crunch and recession. It is not just the UK that is in the mire, a small German bank has closed its doors , Weserbank shut up shop this week, due to a change its business model.

Business model, thats a good phrase to use, and I expect we will hear a great deal more of that particular phrase as the year progresses. It is when the tide goes out, and it's certainly ebbing quite fast, that you find that business models that looked good when times were OK, are suddenly on sinking sand. Companies that are too relient on banks for overdrafts and loans, and are highly geared, are coming under increasing pressure on two fronts, the increase in the price of credit and the reduction in available credit.

The very fact that on the day that the Bank Of England cuts base rate, some building societies and banks are actually put up theirs. It is no co-incidence that the institutions are repricing their loans. They are under pressure to recoup some of the losses that they have had to swallow, and also what they expect to have in the near future.

We now come to inflation, a word that had almost disapeared over the last 10-12 years. The Bank of Englands target rate of inflation is 2%, but with the increase in fuel, food and energy prices, inflation is back into the system. So as the song says, "its a long and winding road ", but where it will take us, I have no idea ! The only plus is that with leasing, it is a fixed cost through out the period, so it's a built in hedge against inflation; so at least with leasing, there is a silver lining.

http://www.oaklease.co.uk/