The credit crunch started on August , 2007 as the US subprime mortgage sector began to collapse
The credit crunch is deemed to have begun on August 9, 2007, when French bank BNP Paribas suspended three funds exposed to the US subprime mortgages sector, which was about to go into meltdown.
The crisis spread to the UK and by September 14 it saw panic-stricken savers forming queues outside branches of Northern Rock, which was on the brink of collapse.
The Bank of England bailed out the banks with taxpayers’ money and prevented a property and stock market collapse by slashing interest rates to near zero, but many fear it has laid the groundwork for the next, even bigger, crisis.
Savers have had to suffer record lows in interest rates for the last decade
Savers are the innocent victims of the financial crisis, footing the bill for a disaster that was not their fault.
Maike Currie, director for personal investing at Fidelity International, says they have suffered a decade of pain since rates were cut to 0.5 per cent in March 2009, and to 0.25 per cent a year ago: “For those who have been prudent with their money, perennially low interest rates have hurt.”
The Bank and Treasury intensified the misery by launching the Funding for Lending Scheme (FLS) in July 2012, helping banks and building societies boost their lending and keep the economy moving.
This meant they no longer relied on savers to fund their loan books, and so ignored them altogether.
MoneyFacts.co.uk finance expert Rachel Springall said when the FLS was launched the average two-year fixed-rate bond paid 3.34 per cent, but now savers get just 1.32 per cent: “This marks a loss of £202 a year in interest on a pot of £10,000.”
The disaster has continued with Chancellor Philip Hammond forwarding another £15 billion of lending to banks earlier this month.
She says: “Banks and building societies can continue to draw cheap money to fund their lending, so they still will not need your deposits.”
Bond yields and annuity rates also collapsed after the crisis, upping the pressure on pensioners’ savings.
However, at least buoyant stock markets have put more into people’s pension pots.
The FTSE 100 has more than doubled since March 2009
SHARE PRICE JOY
The FTSE 100 slumped to a low of 3519 in March 2009, but since then has more than doubled to around 7400, turbo-charged by central banker stimulus, such as low interest rates and quantitative easing (QE).
Somebody who saved £10,000 into the average UK savings account in August 2007 would now have £10,460, but £16,847 if they had invested it in the FTSE All Share Index instead, despite the market crash of 2008, figures from Fidelity show.
Yet investors remain fearful that we face another global crisis and Daniel Nicholas, portfolio manager at Harris Associates, warns: “Many are now avoiding financial stocks, which were at the epicentre of the last crisis.”
However, Nicholas says stock markets could surprise again: “China is improving, Europe is growing faster and the US remains strong.”
The Bank of England averted a full-blown house price crash in 2009, only to trigger an affordability crisis instead.
Official figures show the average house price rose another £10,000 over the past year and Ishaan Malhi, founder of online mortgage broker Trussle.com, says this is further squeezing first-time buyers: “They face the gruelling prospect of having to raise a deposit of around £30,000, which is higher than the average UK salary.”
The average UK house now costs 7.6 times the typical annual salary, more than double the figure 20 years ago, according to the Offi ce for National Statistics. Home ownership rates have now fallen from a peak of 70.9 per cent in 2003 to 63.6 per cent today, the lowest level for 30 years.
A quarter of 20-34 year olds are still living with their parents. Although the rapidly rising population is partly to blame, all-time low mortgage rates have sent prices soaring out of reach for many. Home ownership increasingly looks like a thing of the past.
Britons have endured the worst real wage growth on date
TROUBLE IN STORE
The greatest long-term consequence of the financial crisis is that many Britons are feeling much poorer than they would otherwise have been.
The UK has suffered the worst decade for real-wage growth on record, based on fi gures going back to the 1860s.
Worse, Britons have been on a debt binge, as they rely on cheap credit to maintain their former lifestyles.
David Clarke, policy and advocacy adviser at campaigning group Positive Money, says the economy remains over reliant on rising property and share prices: “Many people are spending money assuming the value of their house will keep going up forever. When that starts to look doubtful, the effect on consumer confi dence and economic growth could be nasty.”
Clarke says the Bank of England has painted itself into a corner: “It desperately needs to control borrowing, but its only weapon, raising interest rates, would cause considerable harm.”
Should a fresh disaster strike it will find Britons up to their ears in debt, and policymakers who have used up all their ammunition. The crisis is far from over.