As The US Markets “Sneezeâ€, Will The UK Catch A “Coldâ€?
While there has been much discussion about the housing markets in both the US and UK, it appears that the cracks are starting to show in the US market with a major mortgage lender on the verge of bankruptcy.Â
The “word†from US market experts is that New Century Financial is on the verge of bankruptcy, as financial firms are preparing to pull the plug on future credit lines, with a further 6 or 7 companies also “teetering on the brinkâ€.
While New Century Financial specialises in the high risk mortgage market, lending to parties with patchy credit records, it is a reflection of the high risk approach of late. In what is sure to be a wake up call to the industry, it is estimated that up to 1.5 million American’s are in danger of having their homes repossessed. The knock on effect to the economy is easy to see, and is expected to see consumers “tighten their belts†with spending set to fall.Â
What many in the UK may not realise is the potential knock on effect to our market, due to a couple of issues :-
· The US economy leads the world, and any slowdown is likely to spread to the other major economies of the world - including the UK.
· A number of major UK financial institutions are rumoured to have “substantial†exposure to the US housing market, which may force them inject a greater amount of caution into their UK operations.
Many in the US have been concerned about the balance between consumer spending, savings and the housing market for some time.  After seemingly taking recent events in China in their stride, markets have reacted badly to the news in the US and we are entering another difficult period for worldwide stock markets.
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