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Over the course of the past twelve months or so, it has become increasingly difficult for a potential borrower to be able to be accepted for the personal loan they require through the more traditional lending channels.

Due to the effects of the credit crunch and economic slow down, banks and building societies have become extremely reluctant to offer loans to customers and many specialist loan companies, dealing in areas such as self certification and bad credit loans, have either severely restricted their product range, or simply ceased trading altogether due to not being able to obtain funding themselves in the harsh economic climate.

The Association of Finance Brokers (AFB) has now called on the government to introduce the regulation for the secured loan market, which they have been discussing for several months now, as soon as possible. The AFB are concerned that many potential borrowers who may no longer be able to obtain a loan through traditional routes are now turning to illegal loan companies in order to get the loan they require. They also want the regulation to encourage legitimate lenders to start offering loans once again to those individuals who need them most, even if they have a less than perfect credit history.

Robert Sinclair of the AFB said “there is still a surplus of customers who want to borrow. The vast majority of these are not debt distressed individuals hooked on credit. Many are people in need of refinancing to sort out temporary cash flow problems. It is good news that the Financial Services Authority is considering regulating the second charge lending industry. It would be seen as a positive step by consumers and consumer groups and we have campaigned for this for some time.”

There has recently been a shift in behaviour patterns amongst consumers in the UK, with regard to their financial matters.

According to the latest figures from the Building Societies Association (BSA), a large number of individuals are now choosing to repay their debts on personal loans and credit cards, as opposed to saving the money in a bank or building society savings account. It is quite probable that many people have had a wake up call during the recent recession, which has prompted them to reduce their personal loan and credit card debts, in order to lower their regular monthly commitments.

Coupled with this, is the fact that a growing number of individuals no longer trust banks with their savings and therefore choose to use the funds elsewhere.

Although there has been a steady increase in the number of homeowner loan applications since the start of the year, this is still at 57 per cent lower levels than the number of loan approvals at the same time last year. Meanwhile, there has been a net withdrawal from building society savings accounts of around £494 million, as people either stop their regular savings, or withdraw cash from their accounts to repay their loans.

Adrian Coles of the BSA said “While the mortgage market appears to have recovered slightly from the start of the year, levels of activity remain depressed. There is evidence that households are looking to repay debt rather than save and it is possible that there will be a net withdrawal from the total UK savings market in 2009. Overall, building societies offer attractive savings accounts that are trusted by savers. As a result, societies have attracted substantial inflows since the financial crisis began.”

There was a set back for the optimistic outlook with regards to the full and speedy recovery of the UK economy during the month of May, as the Bank of England announced that the figures for growth in new loan completions on both business loans and personal loans to individuals, as well as homeowner loans and mortgages, was at the lowest level it has ever been since records were first kept back in 1993.

Although there has been a continuous and steady improvement in the number of loan approvals over the past few months, since the beginning of the year, this has been from an all time low level of activity and the figures just released for May will have undoubtedly had an adverse effect on confidence levels in the prospect of an early economic recovery.

The Bank of England said that the annual rate of growth for new loans stood at 1.3 per cent in May, compared with a figure of around 11 per cent at the back end of 2007 and the main reason given for the poor growth figures currently was due to lower than expected new acceptances on homeowner loans and mortgages for new house purchase, along with a continued decline in the number of loans for remortgage purposes, which have suffered greatly due to particularly low standard variable rates on borrowers existing loans making a remortgage an unattractive option.

Although the actual number of new homeowner loan cases is increasing steadily, the rate at which these are growing is the cause for concern. There were a total of 43,414 new homeowner loans which completed throughout the month of May, only 223 more than the figure for April, which is the smallest amount of monthly increase since January this year.

New research from the Citizen’s Advice Bureau (CAB) has revealed that a large number of lenders are using charging orders in order to bully borrowers who may be struggling to keep up with their unsecured loan repayments into repaying more than they can realistically afford, rather than trying to help those customers who are facing financial difficulty and require assistance and advice instead of the additional pressure of possibly losing their home due to arrears on an unsecured loan, or other debt.

A charging order can be applied to an unsecured loan debt by the courts and has the effect of securing the loan on an individual’s property, thereby putting their home at risk if they default on the loan, as the lender is able to force the sale of a person’s home in order to repay an unsecured loan debt. CAB have found that a growing number of loan companies are using charging orders sooner than is actually necessary, when a borrower falls into arrears on an unsecured loan and have accused lenders of using this method of court action to frighten people into repaying unaffordable amounts on their previously unsecured debts.

David Harker of CAB said “The law as it stands leaves debtors far too exposed to unfair treatment and the risk of losing their homes from unsecured creditors. Some creditors are using the court process as a tactic to intimidate vulnerable debtors into paying unaffordable amounts. This is not only unfair to the individuals concerned who have offered payments towards their debts, but is also unfair to other creditors.

It is vital that people who are doing their best to repay their debts should be protected from further debt collection of enforcement action and from enforcement related costs that are disproportionate to the size of the debt. The current law on charging orders urgently needs reviewing and appropriate protection put in place.”

We reported last week on how an increasing number of people are getting themselves into a heavy debt situation through taking on too many personal loan and credit card commitments, leaving them unable to manage their finances, with many building up severe arrears on their loans and other debts, leaving them facing the possibility of bankruptcy.

The growing concern is that an extremely high proportion of these individuals are under the age of thirty and many experts blame this trend on the fact that there is insufficient education in schools with regard to managing money and finances, with particular reference to personal loans and debt management.

In response to this growing problem, the government has launched a new initiative this week which will be known as “My Money Week”. The idea is designed to bring financial education into schools for one week from the 29th June to the 3rd July, in an attempt to provide some level of financial education for children and hopefully help them to manage their money better in the future and avoid the pitfalls of being burdened with heavy personal loan and credit card debts, which they may be unable to cope with.

The week is being organised by the Personal Finance Education Group (PFEG) and David White from the group had the following comments to make on the idea. “It is vitally important that children and young adults are educated as early as possible about money and finance. This will better equip them to make smart choices when it comes to managing their own budgets and savings in the future.

Over the past eighteen months we have all seen how a “spend now, pay later” attitude towards money has had a profound effect on some households. We firmly believe that helping youngsters learn about the importance of money management and saving is essential to giving them choices and easing their later transition into working life and adult life.”

It would appear that we, in the UK have become a nation of borrowers, with debt levels through personal loans and credit and store cards reaching an all time high.

Whilst this may be all well and good when the economy is stable and people are earning good money with plenty of job security, when we hit a bad patch in the economy, as we are doing at the moment, many individuals find themselves struggling to keep up with their personal loan repayments and credit card commitments, falling behind with payments and building up arrears on their loans, in many cases leading to long term financial difficulties.

Although this situation is seen across all age groups, it would seem that the most likely people to get themselves into trouble with personal loan and credit card debt are those aged thirty and under.

The news comes in a new report published last week by the Citizen’s Advice Bureau (CAB). The charity has said that around 62,000 individuals declared themselves bankrupt over the course of last year, which shows an increase of approximately 10,000 more than the figure for 2005 and worryingly, a large proportion of these cases relate to people under the age of 30.

It seems that many young people want to have the best of everything at an early age and aren’t all that concerned about how they get it, taking out several personal loans for luxury items such as new cars and holidays and running up huge credit card debts on weekly shopping sprees, without thinking about the consequences of how they will ever repay their debts.

CAB have seen more than 50,000 individuals under the age of 25 since the start of 2008 with financial problems due to loans and cards and many view the option of bankruptcy as an easy one, without fully realising the implications for their financial future. Young people clearly need a better level of education with regard to financial matters, before they are ever allowed to take out a personal loan, or own a credit card.

We have seen a lot of positive signs, over the past couple of months, that the worst of the current recession and economic slow down in the UK may be slowly coming to an end.

Certainly things are starting to pick up in the housing and loan markets, with buyers returning to the market, house prices now stabilising and in some cases, even increasing, along with banks and building societies slowly starting to dip their toes back into the water when it comes to offering new loans to borrowers.

Despite this good news, we are still recovering from a historically low level of activity and therefore a small increase in numbers will show up in the statistics as a relatively high percentage growth. The Bank of England have said that despite the improvements, it could be up to a further three years before banks and building societies are fully comfortable with offering loans to individuals once again, at what would be considered normal levels.

The Governor of the Bank of England Mervyn King, revealed the news yesterday, whilst speaking at a Treasury select committee. He also called on the government to grant additional powers to the Bank of England in order to supervise lenders.

He said “We were given a statutory responsibility for financial stability in the Banking act. The question I put to you in February, and to which I have not really received any adequate answer from anywhere, is what exactly it is that people expect the Bank of England to do? All we can do at present, before a bank is deemed by the FSA to have failed, is to write our financial stability report and give speeches. If you are content with that, that is fine by me. What you cannot do is turn around afterwards and say “you have a statutory responsibility, why didn’t you do something?” when there is nothing we can actually do.”