Availability of Credit

Availability of credit is a key driver in fuelling house prices. The easier it is to get a mortgage, the easier it is to buy a house. Recently the American sub prime crisis has exported it's disease over to the UK which has manifested itself in the Northern Rock crisis in the financial markets.

Most of this has been explained in the Credit Crunch section but it's fascinating to see how easily debt is bought and sold throughout the world. The bankers who earn millions every year from out of all of us do this by grading the debt they have

racked up by increased availability and by selling us our mortgages, loans and credit cards and then swapping this amongst themselves so that they all carry a certain amount of risk.

As we all know, the greater the risk, the more the reward. So if everyone has their acceptable level of risk and can earn their bonuses by doing what a market trader can do, then they earn from all of us in a measured way and we can all get what we want in terms of goods and services, including buying houses.

The credit crunch has generated uncertainty in terms of the quality of these loan swaps - they don't know who in particular are on their books and they don't really know what the risks are.

It's fantastic to think that bankers could behave so recklessly with someone else's money which of course directly affects all of us. Whilst the worst of the phenomenon is in the USA, some British banks are involved either over here or because they that traded loan swaps with other banks which may include some US sub prime loans.

With the advent of a tighter credit supply what this means is that lending institutions will be more circumspect about their lending criteria. With the availability of credit reduced, it may become more difficult with reduced availability for people to get loans and mortgages. The knock on effect is that there will be an increase in the number of credit applications and rejections, with diminishing credit ratings for individuals (the more times you apply for credit, the greater the chance of rejection).

Credit availability is a serious concern for investors as we can see. Of

course, those who have good credit history ought to remain unaffected but depending on the type of mortgage applied for and depending on who supplies it, means that if your income needs to be assessed on your buy to let properties, then perhaps you should consider going to a buy to let agency who specialises in these type of mortgages.

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