Credit Crunch and Its impact on UK's Real Estate Market Dissertation

conviction Crunch and Its impact on UKs Real Estate Market - Dissertation ExampleBernanke and Lown (1991) define a opinion squelch as a winnow out in the supply of credit that is abnormally large for a given stage of the business cycle. Credit normally contracts during a recession, but an unusually large contraction could be seen as a credit crunch. The credit crunch is the result of multiple factors. These multiple factors adversely ingrain the ability of the banks to supply credit at a sequence when banks ability to adjust to these factors was unusually limited. A credit crunch that continues for a long time is actually opposite of easily available and plentiful lending practices .These cheap lending practices are sometimes called Easy Money or Loose Credit .As it been stated earlier that credit crunch is a cyclic process . During the upward phase in the credit cycle it is seen that the worths of the assets undergo lot of longing competitions .Upward credit cycle is also ma rked by the presence of leveraged bidding with inflation in a particular asset market. These all situation raise then lead to formation of a speculative price bubble. During the upswing of the cycle increase in the money supply happens because of new large debt creation. This in rescind stimulates the economic activities. Finally there is also chances of temporarily raise in economic growth and development.(Cooper,2008) The reason of credit crunch can be diverse. a couple of(prenominal) of the reasons are given below 1. If there is an anticipation about the decline in the value of the collateral. The collateral is used by the banks to secure the loans that are taken. If the decline in value continues then it will lead to credit crunch.(Bizer ,1993) 2. If there is perception in the market about the risk of insolvency of other banks in the banking system. In this situation the traditional financial institutes will tighten the credit lending regulations (Kleege and Stephen,1992) 3. When the central government is imposing direct credit controls or are implementing pecuniary changes then lending of the loans will be done very warily by the goverment. (Grant,1993) 4. When there is a prolonged carelessness in lending the loans. The process of lending the loans is inappropriate and doesnt take into account the intricacies of market and interest rate. This leads to losses to the lending institutions. The debtor is not able to pay the debt and finally the financial institutions will reduce the availability of credit. The prolonged defaults by the debtors leads to credit crunch.(Peek ,Joe and Eric,1993). 5.When the assets which were overpriced, before ,suddenly sees a sharp fall in their prices then it leads to financial crisis because of price collapse. If this price collapse continues then many banks and investors will face insolvency and bankruptcy. The financial institutions will become more alert .As the result the financial institution restore to tie the regul ations for lending the loan and as a result the market will face the credit crunch.( Rosenblum.1991) The last two points were the main reason for the recent credit crunch that struck the worlds economy. This was caused due to the bursting of housing bubble in