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The UK’s harsh economic climate is forcing thousands of Brits to severely cut back on their personal spending and credit acquisition rate.

A spokesperson for one of the countries largest financial analytics institutions suggested that records highs with regards to the national rate of interest, coupled with comparatively low consumer net earnings, would soon start to show an obvious strain on the pockets of many families.

He further commented that a large proportion of unsecured credit lenders would also start to reduce the availability of their products, with some personal loan and credit card providers already making provisions.

We are in a time of economic uncertainty, for both consumers and credit providers. National growth is slowing at a significant rate, lenders are more reluctant to take risks and consumers are becoming more reluctant to borrow.

One expert suggested that Bank of England is being presented with little other alternative, than to reduce the current rate of inflation before the end of 07, although some analysts predict it may rise further.

Uncertain economic conditions have caused the fixed rate mortgage to become the home loan of choice, according to recent studies by a leading mortgage provider.

A survey conducted by Abbey National discovered that more than 70% of mortgage shoppers are reluctant to take out a variable rate home loan plan for fear of yet further rises in the national rate of interest, in the foreseeable future. 

The national base rate has risen no less than 5 times so far in 2007, settling at its current position of 5.75%. However, analysts and indeed members of the general public appear to be bracing themselves for yet another rise in the next month or so.

In light of this proposition, rate conscious consumers appear to be doing all that is possible in order to avoid the variable rate mortgage, and it is also suggested that the number of newly issued fixed rate products, increased by around 25% during the month of August.

A spokesperson for the lender commented that fixed rate plans do traditionally come to the forefront, when economic conditions are not as certain as they could be. Consumers view the variable rate as a somewhat risky proposition at this particular moment in time, with many new applicants opting for plans, which offer more reliability with regards to budgeting for their monthly outgoings.

More and more UK banking institutions are rejecting loan applications from customers who have a tainted or sub prime credit history…but why?

Analysts believe that in light of the recent fiasco, which affected what was once one of the UK’s largest sub prime loan providers (Kensington) and also the fall of one of the US’s largest bad credit loan providers (New Century), many banks have unsurprisingly, become reluctant to serve bad credit customers.

One of the first major banks to actively start refusing what it deemed to be “risky” loan applicants (Barclays) has stated that sub prime lending is starting to have a major effect on bottom line profits.

Experts suggest that the sub prime market has become far too volatile for many mainstream banks to continue operating in, with members of the media describing the actions as an attempt to bottleneck the availability of credit to certain consumers.

A spokesperson for the bank has stated that a thorough review of its customers, and their credit situation is currently underway, which will undoubtedly result in a reduction of credit availability for those people who have a history of being continuously over-stretched.

Newly published data by the UK’s leading mortgage advisory service reveals that although the number of newly issued home loan plans for the month of August was below average, borrowing levels across the board were still atypically high.

Accordingly, total borrowings for the month of August levelled out at around 33 billion, representing a fall of around 5% faired against that of July. However, faired against the same time last year, this figure was still well above the typical month average.

A spokesperson for the organisation responsible for the research suggested that changes in the national base rate have had an obvious effect on consumer borrowings and it would appear that many Brits are conscious of a further rate rise in the not to distant future. He also suggested that would be borrowers will more than likely continue to be vigilant until a more favourable change in national interest rates occur.

In addition, individuals who are currently in the throws of the last rate rise and are struggling with increased personal debt as a result are likely to be pushed even closer towards their financial threshold, if interest rates continue to increase at their current pace.

According to recent studies, the number of people using secured homeowner loans as a means to consolidate their outstanding credit has more than doubled in the last 12 months.

Commenting on the findings, one expert suggested that by using the available equity in a person’s home, as a way to clear a rising number of smaller credit commitments does make a lot of financial sense. It would appear that an increasing number of people are taking advantage of this particular method of debt control, with recent economic conditions more than likely fuelling its growth.

However, any homeowner who is considering the use of a loan secured against their property for debt related purposes must also ensure that their new repayment plan can be comfortably managed. Accordingly, a large percentage of indebted consumers who have used similar consolidation methods, have lost their homes due to an inability to meet the terms of their secured loan.

Although there are some very real and very serious detriments to defaulting or mismanaging payments on such loans, for those who are able to manage their repayments, the benefits can be quite substantial.