The Subprime Crisis Hits Britain Hard

Though the UK has finally emerged from a deep recession, the future is far from rosy as problems in the housing markets persist. Just three years after home values reached record levels, they went into a virtual freefall. Today home prices are off by nearly twenty-five percent as sales have dried up and buyers are on the sidelines.

When did this begin? The first real warning was when Halifax, Britain's largest mortgage bank, nearly collapsed in September of 2008. The institution lost billions of pounds after hedge fund managers sold the company short and homeowners defaulted on their mortgages in record numbers. Though the so-called sub-prime mortgage crisis began in the States, many economists believe that is has actually done more damage in the UK.

The reason for this is often attributed to rising interest rates and shockingly high levels of personal debt. The simple fact is that millions of homeowners in Britain did not have the money to pay off their mortgages, which led to a record number of bank foreclosures and more Property For Sale in London . The only problem is that no one is buying.

What do the banks do when no one buys the properties they desperately need to sell? Well, they lose money. And that, in short, is what has transpired in British banking over the past two years, as dozens of reputable banks have gone under and dozens more teeter on the brink of collapse.

Will they survive? While the end of the recession was heartening news, few industry insiders believe that the housing market will rebound any time soon. In fact, most banks are forecasting several years of slow growth and only slightly higher home values.

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