Who benefitted from the 2008 financial crisis? Were there any clear winners and losers? Read on with Cashfloat, a trusted short term lender to find out.
Did Anyone Benefit from the 2008 Financial Crisis?
It is now nearly 13 years since the financial crisis hit the UK, bringing economic devastation in its wake. This may be a good time to evaluate the consequences of the credit crunch and to consider both the positive and negative outcomes.
The Bank of England responded to the crunch with one of the first financial strategies to aid the failing economy. They lowered interest rates to unprecedented levels, dropping from 5.5% in 2007 to 2% in December 2008. This significantly eased mortgage repayments for many UK consumers. Reducing the base rate meant that borrowers benefited more from the lower rates than savers. While many felt that this was unfair, it did help a substantial amount of people to get through the recession without the fear of losing their homes.
Savers Lost Out from the 2008 Financial Crisis
Savers usually get the short end of the deal unless interest rates are exceeding inflation rates. During the 1980s, interest rates rocketed to an all-time high of around 15%. In this market, it made sense to have savings because inflation was running at around 6%. This meant that in real terms, money in savings accounts was keeping its value. However, due to the effects of inflation over a longer period of time, savings will generally lose their value. In addition to savings losing value, profits from savings have also gone down in real terms. People who shopped around for the best savings rates possible may have gotten lucky. However, there is no doubt that most savers lost out in the years following the financial meltdown in the UK.
Benefits of the Financial Crisis for Savers
One major positive outcome is the national awareness of saving for a rainy day instead of solely relying on credit. Additionally, the rise in the number of available financial products and comparison websites allows consumers to choose the best and most profitable place to keep their money. At first glance, it seems that most savers lost out during the financial crisis due to low returns from low interest rates. However, those who compared rates and got good returns on their savings are better off financially than before the crisis.
Negative Outcomes
On the downside, people who were relying on interest from savings to prop up their income lost out in a big way. These include pensioners who were the backbone of the government’s National Savings scheme. Many were unaware that interest rates would drop substantially at the end of a bonus period or when a fixed rate bond ended. In this scenario, the funds are transfered into a low-yield low interest account after the initial bonus period. Unless the account holder kept a strict eye on their savings, they would lose out. People lost substantial amounts of money during the credit crunch. Many were struggling to cover living costs, and had to resort to payday loans for help.
Mortgages: Winners and Losers
People searching for a mortgage now are at a severe disadvantage compared to before the crash. Banks and other financial institutions have much stricter acceptance criteria than in 2007. There are fewer mortgage products than ever available on the market. Before the credit crunch there were over 20,000 to choose from; now there are only around 2,500. Lenders also demand a much higher deposit to reduce the risk of default.
Mortgages are less available, and required deposits are higher. However, due to the steady low interest rates following the crisis, there is a wider range of excellent deals on both variable and fixed-rate loans. Potential house buyers who can summon up the necessary large deposit will typically pay around 2.50% interest on 60% of the value of the house. So, this means that winners include mortgage holders on existing variable rates who are paying less every month and new buyers who have the necessary deposit. Conversely, potential buyers who cannot produce a high enough deposit are the ones who lose out.
