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Sunday 12th of October 2008
October 31, 2007

2 million Americans face repossession while Brits struggle for credit


by Kay Murchie
”2

Britons may be struggling to get credit but the position is far worse in the US as 2 million Americans face losing their homes as a result of the sub-prime mortgage crisis.

A second rate cut of a quarter point in America is expected later this week. However, many are indicating that it could even be a half point cut in order to avoid the approaching wave of foreclosures when fixed-rate deals expire and borrowers suddenly find themselves paying up to $500 a month more in mortgage repayments.

It is believed that the loss to the US economy could be as high as $2 trillion and at least 2 million Americans could face repossession.

There is concern that a similar situation could soon take place in the UK property market. The property price downturn in the US has prompted the sub-prime crisis and has taken on a life of its own as it threatens the UK’s dangerously indebted households and large financial services sector.

Last week, the Financial Stability Report issued by The Bank of England confirmed that certain aspects of the UK economy were very likely at risk.

Many experts have highlighted certain aspects which make the UK vulnerable to a crisis of American proportions. In the last decade, the UK housing market has far exceeded that of the US in terms of property prices. However, these are now starting to stabilise and there are signs of a slowdown. In addition, the percentage of Britons’ income that is used to pay off debts is similar to levels unseen since the crash of the late 1980s.

A spokesperson for GFC Economics believes that the UK is about 18 months behind the US and their housing market started turning down in 2005.

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