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Over the past few months we have all heard many stories and reports from the Media about the likely impact of the credit crunch and slowing economy with regard to those individuals with mortgages and other home loans. As lenders struggle to maintain liquidity within their books and many borrowers’ fixed rate deals coming to an end this year, we will see the cost of our mortgage increase to the degree where it will have a dramatic effect on our standard of living…….apparently!

It was a pleasant change and quite refreshing to hear a more optimistic view of the current situation from Bob Pannell, who is the head of research at the Council of Mortgages Lenders. In his address to a group of professional financial advisers and mortgage brokers at the Mortgage expo held in Manchester, earlier this week, he said “I believe that the most intense payment shock has already happened, or is happening now, especially on two year fixed rate deals which make up the majority of mortgages due to mature this year” he also commented that the effect of the payment shock has not been nearly as bad as we have been led to believe by the Media and that most borrowers with a mainstream mortgage have been able to cope with any increases.

Mr Pannell’s observations were based on the mainstream mortgage deals, for those individuals with a good credit history, which accounts for the majority of the UK mortgage market. He did agree, however, that those borrowers in the sub-prime sector were not so lucky and many faced a far greater payment shock at the end of their current deal than mainstream borrowers and were less likely to have the strategies to cope with the increased payments required of them.

As borrowers’ deals are reaching the end of their terms, an increasing number of individuals are now seeking professional advice from independent advisers and brokers who have access to a much wider range of mortgage products than just those available on the high street, in fact many brokers are seeing enquiries increasing by up to 50% over the past few months.

Following the revelation earlier this week that inflation had reached 3%, the Bank of England gave out a gloomy forecast for the economy yesterday. In a statement from the Governor of the Bank, Mervyn King, it was announced that inflation was likely to rise well above the current levels and could even reach 3.6%, which would have the effect of increasing prices yet further and placing “a squeeze on the real value of take-home pay, which would slow consumer spending and output growth, perhaps sharply”.

The Bank of England is required to report to the Government every three months on the level of inflation and reducing the rate back to the target figure of 2% is likely to be their priority over the coming months. This means that it is less likely that we will see further interest rate cuts this year, until inflation is under control.

Mr King said that the high rate of inflation, caused mainly by rising food and fuel prices, would cause the economy to slow dramatically, with the possibility of a couple of quarters of negative growth, which would mean a technical recession, although this is not the Bank’s main prediction. He also defended the stance taken on interest rate cuts by saying that inflation was the priority rather that slashing interest rates as the Americans have done.

The markets have altered dramatically over the course of the last three days, with experts going from the position of predicting two further interest rate cuts this year, to saying there is not likely to be any rate cut until well into 2009 and there could even be the possibility of a rate increase.

All this news adds yet more negativity to the housing market and those people with mortgages and loans who are finding it particularly hard at the moment and were looking forward to feeling the benefits of some interest rate cuts. It seems we may have to struggle on for some time yet.

A recently conducted survey has discovered that an unusually high number of parents around the UK are struggling to make ends meet.

According to a well-known financial comparison site, more than ¼ of British parents admit that they are no longer able to rely on the sole income of their partner to cover the monthly household expenses, and as such have become forced to find additional work rather than devoting their free time towards raising their children.

There are a number of factors which have been identified as contributors towards this changing trend, however, a rise in the cost of living as well as increased costs associated to general child care and maintenance appear to be at the butt of the problem.

In addition, it has also been found that a rising number of struggling families are turning to providers of personal loans when times become tough. Experts are concerned that this newfound dependence on credit to pay the monthly bills will create a vicious cycle, where Britain’s poorest families are plunged deeper into the realms of financial despair.

In related news, Chancellor Alistair Darling has announced that more than 2.7 billion pounds will soon be handed back to tax payers across the UK, as Labour attempts to make good the costly mistake of the 10p tax rate.

The value of houses across the UK fell by 1.1% during the month of April, it has been revealed by the Nationwide Building Society. This has been the first month in which prices have fallen in all areas on a year-on-year basis since March 1996.

The announcement adds weight to the argument by many that the impact of the global credit crunch will hit us harder than was first thought, with some experts predicting a decline in values of up to one third. Others take a more optimistic view and suggest that the recent reduction is due to a lack of consumer confidence in the market. People are not prepared to commit to buying a house at the moment due to the negative press coverage we see on a daily basis, leading to a surplus of houses for sale, which inevitably leads to a reduction in price.

The general slowdown in the housing market is placing additional pressure on the Bank of England to reduce interest rates further still. There have been three rate reductions since December 2007 and it is thought that there will be another reduction in June this year. However, rising food and fuel costs are keeping inflation higher than the Bank would like, which means that rates will probably not fall to the extent that many home owners would like to see.

It also means that fewer loan and mortgage applications are being made, not only for those buying a house, but also for existing home owners looking to raise capital through either a re-mortgage or a secured loan as they see the equity in their homes being reduced.

We must remember though, that these price reductions are on the back of huge rises in property values over the past ten years and what we are witnessing at present is hopefully just a price correction, which will allow buyers to re-enter the housing market.

Providers of Home Loans within the UK are being coaxed towards providing a more caring ear to those borrowers who are unable to maintain the repayments of an active agreement.

One of the countries leading consumer interest groups is believed to be proactively lobbying numerous different lenders around the country, in an attempt to establish some common ground for which to aid those borrowers who are edging deeper and deeper into the red with their home loan facility.

The group has suggested that certain lenders are not providing a fair level of attention to customers, or more specifically looking for ways in which the pressures surrounding their financial predicaments can be alleviated.

A spokesperson for the group commented that in a lot of cases, lenders are blanket branding their customers as bad debtors and simply allowing the mechanics of the corporate wheel to call in the services of debt agencies.

Under the conditions of our current economy it has become vital for providers of home loans to thoroughly analyse each of their debtors on a bespoke level, and to build a solution that is reflective of them as an individual.