We're still gripped in the iron jaws of the credit crunch, but what can we do about it? Martin Lewis tells us
The credit crunch meant fewer people could borrow, isn’t that a good thing?
Of course, the credit crunch did result in a reduction in free and easy borrowing as the system clogged up and banks had no cash to spend. Yet recession and worldwide economic trauma followed.
It isn’t as easy in the modern world as saying “neither a borrower nor a lender be”. If you want to go to university or buy a home, most will need a form of borrowing. Certainly we need to encourage responsible lending (and borrowing), but people being deprived of access to credit is a real issue.
Whether it’s to buy a home, start a business or cut existing debt costs, tough credit conditions can tighten finances to an unsurvivable level. It’s a fine balance.
Yet actually, since the first impact of the crunch, not everything is equally deprived of funds. In some cases, the best deals we’ve ever seen are out there – for the right people.
Credit cards have left many people in a dire state. Have things eased?
While the average APR (annual interest rate) on credit cards has increased to a horrid 18.8% now (according to financial website Moneyfacts), do remember that if your lender writes to you saying it’s jacking your rate up, these days you have a legal right to reject that rise, as long as you don’t need to borrow more on the card.
If you’ve got existing debts, we now have far longer 0% balance transfer deals available than we did pre-crunch. A balance transfer is when you get a new credit card that pays off the debts on your old cards for you – so you owe the new cards the money instead, at what’s hopefully a lower rate.
Barclaycard Platinum allows successful new customers to shift debts to it at 0% for 22 months with a fee of 2.9% (though transfer debt onto it before next 11.59pm next Monday and you get half of that back). RBS and NatWest’s Platinum cards are also 22 months at 0%, but with a higher fee of 3.2%. With all of these, if you don’t repay before the 0% ends, the rate jumps again to 17.9% representative APR.
If you need a lot longer or are less certain of repayments, MBNA’s Rate for Life card lets new cardholders shift debts to it at 5.9% APR (with a 1.5% fee within the first 60 days, 5% after) and that rate lasts until the debt shifted has been repaid.
The problem is while these deals are good; they all require a good credit score, usually a much better one than before the credit crunch. So while the deals themselves are better, they are less attainable.
Are there any deals available for those with poor credit scores?
For a good few years there was nothing, but over the past year we have seen short 0% deals available for new spending and balance transfers for those with past credit problems, though there are none right now (I suspect they will return).
The only card of note for those with poor credit scores is the Aqua Reward card, where there's no minimum income needed and, unusually, it won't automatically exclude those with past CCJs or defaults over a year old (you’ll still need to pass a credit score). It offers 3% cashback on all spending and perfect exchange rates on spending abroad – yet only consider it if you can repay IN FULL each month or it charges a nasty 34.9% representative APR.
How’s the mortgage market looking?
Mortgages are phenomenally cheap right now - a reflection of where the economy is heading. HSBC, NatWest and Santander all launched the first ever sub-3% five-year fixes last month, but with a minimum £1,495 fee, and requiring at least a 40% downpayment. Tesco also entered the mortgage market this week, but its deals can easily be beaten.
And that’s the real issue - rates are hot, but you need a big deposit (or decent equity) for the best deals and really a 25% downpayment for something decent. Plus credit scoring has become a much more important element. Still, if you’re paying a lot for your existing mortgage, it’s a good time to talk to an independent mortgage broker to see if you can save.