The week the crisis hit home

Level 3 Advanced

1 Warmer

Credit crunch: A shortage of available loans. In well-functioning markets, this would simply mean
a rise in interest rates, but in practice it often means that some borrowers cannot get loans at all, a
situation of credit rationing.

What do you know about the global credit crunch?

Talk in small groups for five minutes and exchange what information you have.

2 Key words and phrases

Find words or phrases in the article that mean the following. The relevant sections of the article have been
given to help you.

1. A legal agreement in which you borrow money from a bank in order to buy a house. Repayments are usually made
monthly. _____________________ (section 1)

2. To remove an offer from the market. _____________________ (section 1)

3. A situation in which your house has lost value and is now worth less than the amount you are paying for it.
_____________________ (section 1)

4. A period when trade and industry are not successful and there is a lot of unemployment. ___________________
(section 1)

5. Someone who buys and uses goods and services. _____________________ (section 1)

6. Amount of money that a person, business, or country borrows, especially from a bank. _____________________
(section 2)

7. An agreement with your bank that allows you to spend money when you have no money left in your account.
_____________________ (section 2)

8. The percentage that an institution such as a bank charges or pays you when you borrow money from it or keep
money in an account. _____________________ (section 3)

9. The total value of the goods and services that a country produces in a year, not including income received from
money invested in other countries. _____________________ (section 5)

10. An economic process in which prices increase so that money becomes less valuable. ____________________
(section 6)

Source: Macmillan English Dictionary Online

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NEWS LESSONS / The week the crisis hit home / Advanced

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The week the crisis hit home
Level 3 Advanced
The week the crisis hit home
Graeme Wearden
April 3, 2008
Introduction
1 Mortgage rates soar as lenders pull their deals!
Millions face nightmare of negative equity! US
recession a possibility, admits top banker!
2 Over the last few days, the reality of the long-
running financial crisis has finally hit home to the
British public, with news of worrying data and
fearful forecasts for the future.
3 With consumer borrowing rising at a time when
banks are dropping their best mortgage deals,
economists warn that many people could be
heading for financial disaster.
4 Federal Reserve chairman Ben Bernanke’s warning
that the US could slip into recession, which would
have drastic consequences for the world economy,
has added to the gloom.
Credit
5 The Bank of England has reported that consumer
borrowing is soaring at its fastest rate for five years,
with lending through loans, overdrafts and credit
cards jumping by a total of £2.35bn in February.
6 Economists fear that this unsecured borrowing is
being used to cover essential costs such as the
monthly mortgage bill. Similar desperation was
seen across the Atlantic last year when the US
economy began to falter.
Mortgages
7 The news on mortgages is getting worse day by
day, with hundreds of deals being pulled every
week. Underpinning the panic is the credit crunch,
which has forced banks to hoard cash and be much
choosier about who they lend to.
8 Bank of England figures show that mortgage
approvals have dropped to 73,000 a month; half as
many as a year ago. First Direct and the
Co-operative Bank have both pulled mortgages
offers, and Halifax is tipped to do the same.
© Macmillan Publishers Ltd 2008
NEWS LESSONS / The week the crisis hit home / Advanced
9 Research suggests the average rate on a two-year
fixed-rate mortgage has risen from 6.15% to 6.29%
over the last two weeks – adding up to £160 to the
annual cost of a £150,000 mortgage.
10 This is despite the recent cuts in interest rates,
which lenders appear determined to ignore.
The housing market
11 “Negative equity threat to 3 million homes” was the
headline in a recent edition of the Daily Mail. But
Labour politicians disagree with the suggestion that
the current problems could lead to a repeat of the
recession of the early 1990s, but official statistics
do back up the concern.
12 In parliament, Vince Cable warned that a 10% drop
in house prices would leave 3m households locked
in the misery of negative equity.
13 Minister Angela Eagle was quick to disagree and
said Cable’s assessment was “colourful and lurid
fiction”. Prices, though, have fallen for the last five
months, and economists warn that a larger drop
becomes more likely once people expect it to happen.
14 “The likelihood of a sharp change in house prices
will also rise if both sellers and buyers start
expecting it to happen. This is becoming a very
real threat due to all the current high profile bad
news about mortgages and the housing market,”
– Howard Archer, Global Insight.
The economy
15 The chancellor, Alistair Darling, insists the UK
economy will still expand this year.
16 News that growth in the key service sector is
slowing is putting pressure on the Bank of England
to cut interest rates. But persistent inflationary
pressures may deter policymakers.
17 The picture in the US is murkier, with Ben Bernanke
warning that the world’s largest economy could shrink
in the first half of 2008.
18 “It now appears likely that real gross domestic product
will not grow much, if at all, over the first half of 2008
and could even contract slightly,” said Bernanke.
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The week the crisis hit home
Level 3 Advanced
Further bad news 21 “The international rice market is currently
facing a particularly difficult situation with
19 Oil is still trading over $100 a barrel which indicates demand outstripping supply and substantial
that petrol prices will stay at their current level of price increases.” – UN Food and Agriculture
about a pound a litre. Organization.
20 Food inflation is soaring. The cost of milk, bread
© Guardian News & Media 2008
and sugar has been going up for many months,
First published in The Guardian, 03/04/08
driven by higher demand in emerging markets. The
latest edible commodity to come under pressure
is rice – prompting a warning from the UN that 36
countries could run short of essential food stocks.

3 Comprehension check

Find the answers to these questions in the article.

1. Mortgage rates are...

a) ... going up.
b) ... going down.
c) ... remaining steady.

2. It is becoming ___________________ to get a new mortgage deal?

a) easier
b) harder
c) impossible

3. Many people in Britain are having to borrow more money to pay for...
a) ... new cars.
b) ... food.
c) ... their homes.

4. Some banks are...

a) ... closing their branches.
b) ... stockpiling cash.
c) ... offering new and exciting deals.

5. House prices in Britain are...

a) ... falling.
b) ... rising.
c) ... remaining steady.
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NEWS LESSONS / The week the crisis hit home / Advanced

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The week the crisis hit home
Level 3 Advanced

4 Note-taking and summarizing

The article is divided up into 6 sections. Make notes of the keywords and facts in each section. Then give a
summary of the article using only your notes.

Introduction

Credit

Mortgages

The housing
market

The
economy

Further bad
news

Summary
............................................................................................................................................................................
............................................................................................................................................................................
............................................................................................................................................................................
............................................................................................................................................................................
............................................................................................................................................................................

5 Discussion

What advice would you give people to help them avoid or survive the credit crunch?

6 Webquest

Read the following articles to discover what advice some financial professionals are giving. Is the advice
similar to yours in question 5?

• http://www.guardian.co.uk/money/2008/apr/13/consumeraffairs.householdbills
• http://www.guardian.co.uk/business/creditcrunch
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NEWS LESSONS / The week the crisis hit home / Advanced

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The week the crisis hit home
Level 3 Advanced

KEY

2 Key words and phrases

1. mortgage
2. to pull a deal
3. negative equity
4. recession
5. consumer
6. loan
7. overdraft
8. interest rate
9. gross domestic product (GDP)
10. inflation

3 Comprehension check
1. a
2. b
3. c
4. b
5. a

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NEWS LESSONS / The week the crisis hit home / Advanced

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