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In the May 2008 Issue of Property Investor News
Finance in Europe
The "credit crunch" first emerged in the US in early-2007 and six months later it had surfaced in the UK. It started in June with a profit warning from Northern Rock, which resulted in the banks share price falling 12% in one day to 834p, and pity any investor that interpreted this drastic fall as a signal to "buy" hoping for the share price to bounce back! In September, the banks share price fell by 50% in under a week to 257p and by November they were 97p. Trading of the shares is currently suspended.
Northern Rock has not been the only casualty of the credit crunch either. Many banks in the US along with UK lenders in "the wholesale mortgage market" like Paragon for example, have suffered substantial falls in their share price/company value. Paragon shares were trading at just under £1 at the time of writing, down from £2.50 in November 2007, £6 only last summer and £8 two years ago. And to think people moan when property prices fall by 2%!
While this serves as a harsh reminder of the risks involved when investing in stocks and shares, the banks problems were also widely reported as being part of a "global credit crunch", but how global is it? While LTVs are being lowered by most lenders here in the UK, is the situation the same in Europe?
Europe securitized
Conti Financial Services arranges mortgages in 45 countries and re-mortgages in 15 countries. Simon Conn, sales and marketing director at Conti says it is no more difficult to get a mortgage in Europe now than it was a year ago: "Lenders abroad would only be affected by the credit crunch if they had followed the same wholesale lending system, but they didnt, with the exception of UBS in Switzerland which got involved with derivatives etc. and "caught a cold". Generally, in Europe you have always had to securitize any lending and I think it would be good if the UK followed that system. There is a low default, or repossession rate, in Europe compared to the UK because of the stricter criteria. If for example you are a multi-millionaire but all of your assets and income are off-shore so you have no proof of income, they wont lend to you even if you have a 30% deposit.
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