Currency market updates - from Foreign Currency Direct (www.currencies.co.uk)

Thursday September 27th 2007

By Alastair Archbold - Senior Executive Dealer

UK Housing Market, and how it can affect exchange rates

UK house builder Barratt Developments has warned that interest rate rises and the recent credit squeeze will hurt the housing market in the coming months.

Recent turmoil on the financial markets has led to mortgage lenders putting up their rates and tightening up their lending criteria. Some suggest the long-predicted crash could finally be on the cards.

"In the past 10 years a global bubble in house prices has developed and it is now bursting," says Jonathan Davis, a chartered financial planner and spokesman for website housepricecrash.co.uk.

"In the US, we see a credit crunch as lenders restrict the money they lend to mortgage borrowers. If lines of credit are closed off people are not able to afford high house prices. This ultimately leads to falling demand and falling prices.” Mr Davis adds.

The result? Prices are falling faster in the US than at anytime in history. This is already slowing US growth and will inevitably hit the UK as well. When the US catches a cold we tend to catch one as well.

The IMF has warned about the risks to Sub Prime lending in the UK, drawing parallels with the US situation, and there will be further market unease over the UK property sector.

All of the Credit Crunch fears mean that the UK Economy may not be as robust as previously thought, as illustrated by the recent Northern Rock Scandal.

Is Northern Rock the only bank in turmoil at the moment? An institution called ‘Moody’ rates the banks on their short-term credit ratings, and give opinions of the ability of issuers to honour short-term financial obligations.  To find out how your Bank or Building society fares, go to moodys.com