Bear Stearns crises spells trouble for borrowers

Homeowners and first-time buyers may struggle to secure a mortgage in the coming months, as lending between banks and building societies deteriorates in the wake of the Bear Stearns crisis, the Daily Telegraph reported today.

Experts have warned that the likelihood of a recession and a prolonged housing slump has increased since Bear Stearns – America’s fifth biggest bank – has been forced to turn to the US Federal Reserve for emergency cash. Bear Stearns has been severely affected by the loss of confidence in credit markets. The company had invested heavily in sub-prime mortgage instruments and other securities that are now considered incredibly risky, and which have fallen sharply in value. Subsequently, the collapse of Bear Stearns’ share price has resulted in the bank having lost more than 98% of its value in the stock market.

Analysts are predicting that the problems experienced by the troubled investment bank will have severe implications for UK homeowners, who are already battling to cope with the credit crunch. Experts have warned that banks in the UK that are struggling with losses are likely to raise the interest rates charged on mortgages and loans to try to recover cash from their customers.

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