Here's the latest post from our very own (and very popular) 'Highly Placed Professional'.
City folk are finally describing the last 10 years as the 'Decade of Debt'. I like that. It's a Hemingway-style short declarative statement. In others words, that's a fact Jack.
Up until now there's been a certain reluctance to look things in the eye and face reality. But post Northern Rock and the wider credit crunch, we just can't stick our heads in the sand.
The Bank of England cut its key interest rate by a quarter-point Thursday, but that won't
help homeowners and small businesses much. Average mortgage rates last month were close to 6.4%. And small business fixed loans cost as much as 8.3%. And this is entirely due to the breakdown in UK money market volumes - the wholsesale market for short term funds. Volumes have now slipped by some 60%, with one month Libor reaching a nine year high on Monday of 6.715 %. With short term rates so high, you will need to see a really aggressive series of base rate cuts by the Bank to soften the blow for consumers.
A host of senior City and regulatory figures have recently pointed out that tighter credit
market conditions will curb consumer demand. The Council of Mortgage Lenders say that one in three mortgage applications will be rejected next year as banks take on less risk. City 'Superwoman' Nicola Horlick herself also points to a huge sell-off in buy-to-lets weighing on property values for the next two to four years. Small wonder then that two Morgan Stanley analysts are advising their clients to steer well clear of a debt-laden UK plc, where they see a 'mismanaged economy' edging the FTSE 100 down by 16% next year.
And, to top it, the International Monetary Fund says that British house prices have risen by more than 50% than their economic model says they should have during the last ten years. The Decade of Debt, remember ?
So now to those latest property figures from HBOS - which are the worst since
1995 (average property prices fell 1.1 % in November, the third monthly drop in a row). But what has blown me away is the general denial about the extent of the problem and how it is likely to affect most everyone. Believe me, unless you have stacks of cash, even you are likely to get credit-crunched in some way in 2008.