After the calm, we are set for another storm as the US initiated credit crunch claims its first UK victim, with the fall of Victoria Mortgages, a UK based sub prime mortgage lender.  Despite having a mortgage book of some £500 million the main banks have withdrawn credit lines and the company has been forced to into administration.  Is this the start of a new phase of economic turbulence?

The longer the UK financial sector appeared to have missed the US credit crunch problems, the more easier a number of investor were breathing.  However, a little after a month after the US market hit problems we are seeing the repercussions on the UK market and Victoria Mortgages will not be the last to suffer. While the company was still viable, the major credit providing banks (Barclays Capital and UBS) withdrew their funding because of concerns about the market overall.  So how will the stock market react?

The stock market reaction as yet has been fairly muted, although it is struggling to make any real headway forward.  Many investors are sitting on the sidelines waiting for the next big sell-off, which many analysts are expecting over the next few weeks.  What will cause this next round of sell offs?

The next round of sell offs could be a mixture of small players being forced into administration (a constant drip feed of negative news to the market) or the collapse (or major deterioration in the health) of one of the majors mortgage lenders.  The next few months are going to be very difficult for worldwide stock markets, and there will be many investors afraid to dip their toe into the water just yet. 

There are difficult times ahead, with mortgage rates set to rise due to the increased cost of inter bank borrowing – all at a time when base rates are high, the economy is slowing and the property market looks on the verge of a possible turning point.  Caution will be the watch word for some time to come.