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Surviving the downturn

Updated Wednesday 26th November 2008

Cheaper mortgages, lower house prices - it's hard to decide who the winners are, as Sharon Slade explains.

Are there any two words more widely used right now than ‘credit’ and ‘crunch’. Every news programme brings further developments in the ongoing drama where the hapless audience sit and watch the story unfold, willing it to end but worrying what the ending will be. A model pretending unconvincingly that she's been caught in some rain Copyrighted image Icon Copyright: Jorgosphotos | Dreamstime.com Are you prepared for if the financial weather turns?

We probably now understand more about the trading of risk than we ever thought we’d need or want to know, but I feel a little like a rabbit caught in the headlights of financial juggernaut. We can’t help but listen to the latest news, but what does it mean for most of us? Our pension funds are worth less, endowment policies are even less likely to meet the required amounts and many of us, who have long seen our homes as long term saviours of our financial well being, are developing distinct facial tics.

A year ago, my partner and I found the renovation project of our dreams and fairly quickly accepted an offer from a first time buyer on our own small, but perfectly formed, terraced house. Despite increasing nerves as house prices began to rapidly fall and some last minute bargaining by the buyer, we emerged unscathed, albeit with a wreck and a sizeable mortgage. Lots more work and money will now be needed to achieve basic comfort, let alone the ideal home.

We’ve been reasonably lucky, having arranged an earlier mortgage extension that we could draw upon as and when we need. Any meagre savings have long been pulled from their once ‘safe’ places in order to minimise future debt, and the mortgage rate has just fallen dramatically.

The builders couldn’t be more helpful, trade suppliers for large purchases are proving incredibly flexible and open to negotiation and all seems to be going well. So far, so good. But there’s a nagging feeling of unease that there are further upsets in store, and the prospect of committing to a further 20 years of debt, albeit cheaper debt right now, is a little unnerving. If we thought of our house as an investment before, I suspect that we, like many others, will now regard it first and foremost as a home.

On the other side of the fence, quite literally in our case, our old neighbours had been unable to get a buyer for over 15 months. Now, just six months after we completed on our house, they have accepted an offer £80,000 less than our selling price.

But who is the winner here? So they’ve taken a hit on their current house but they’ve also snagged a bargain on a bigger and better property which has fallen even more steeply in price. The big increase in mortgage which they had assumed they would need in order to upgrade is now not so big.

It’s been hard to identify any clear set of winners in this climate, but those determined to buy property rather than rent who are climbing up the housing ladder, as first time buyers or moving into bigger properties seem to be in the frame.

Plenty of provisos to this though … if new mortgage funds can be readily accessed at the lower rates, if the threat of job loss isn’t imminent, etc. A few months ago, savers were being hailed as the clear winners of the credit crunch as banks tried to improve their balance sheets. Expectations were that this would change over time, and this is now the case, with savings rates falling and those relying on equity or shares as investments and income generally feeling the pinch.

On a more positive note, the impact of the credit crunch may prove to be a much needed catalyst for some. Long held dreams of making a significant change in career direction become less of a big step into the unknown in the face of redundancies.

Economic downturn has previously led to an increase in applications for university or college places as many seek to re-skill or upskill themselves in the uncertain job market. With student fees fixed until 2009, this may well feed a move for many back into education as a way up and out. Although not a path that many would actively seek, an enforced change could be the silver lining for at least some. 

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