Deleveraging

Before the credit crunch, firms and households expanded through ‘leverage’ - borrowing to buy assets. It worked provided asset prices rose as lenders knew they could seize and sell them should a client fail to repay interest and/or capital. ‘Deleveraging’ is this process in reverse.

The trigger was the credit crunch, which spawned falling prices for everything from houses and stocks to commodities.

Now over-indebted households, firms and hedge funds, many with falling incomes, can no longer find credit and are being forced to sell assets to repay even existing loans. This reinforces the downward trend in asset prices, leading to more loans being called in. The result is a vicious circle of economic contraction.

• See Tim Bennett’s video tutorial: Three ways leverage can boost your returns.

MoneyWeek magazine

Latest issue:

Magazine cover
Cheaper oil

Who benefits?

The UK's best-selling financial magazine. Take a FREE trial today.
Claim 4 FREE Issues

Vote in the MoneyWeek Readers' Choice Awards

Vote for your favourite financial services companies in the inaugural MoneyWeek Awards, and you could win a year's subscription to MoneyWeek magazine. Find out more and vote here.


Which investment platform?

When it comes to buying shares and funds, there are several investment platforms and brokers to choose from. They all offer various fee structures to suit individual investing habits.
Find out which one is best for you.