During an interview for a reporter today, I was trying to explain why calling everything “the credit crunch” was nonsense (see my credit crunch and other myths blog). In it I came up with a nice explanation of The Four Horsemen of the Financial Apocalypse (it’s only the size of their charger that varies):
- Economic Slowdown (Shetland pony). Just a Shetland pony size problem at the moment. It’s slowdown not recession, yet the lack of stability and worries over job security are having an impact.
- Inflation (Racing horse). A fair sized racing horse this. Things are starting to gallop quite fast, and sadly, if your money’s on the wrong horse you can lose quite a lot. Some people are feeling the real hit from prices of food, gas & elec, petrol and more.
- The Credit Crunch (Cart horse). A fair cart horse size here, especially in the mortgage market. Anyone who has to borrow more than 80% of their house’s value is really feeling it and deals are hard to come by. The unthinkable result for many is they’re moving to their lenders Standard Variable Rate and that’s the cheapest; they can’t get a better deal.
- House Prices (Mule). A bit of a hybrid mule this, as it’s part caused by the credit crunch. In many ways a house price correction was needed to sort out the overpriced property market; the problem is the speed and depth that we’ll face. The worst hit come in two categories. 1. Those who overborrowed on the back of property porn TV shows irresponsibly urging people to borrow to the max. 2. Those who spent their house value by spending on cards, then moving that to their remortgage, meaning they’re paying the debt off over a much longer period, thus ruining their loan to value ratio making cheaper mortgages more difficult.
Apocalypse is obviously too strong a word, yet for a few people the meltdown is happening. The real key at the moment is the pain of transition, which feels even worse as we’ve been used to boom times for so long.
