The total level of personal debt in the UK has actually now exceeded GDP growth and is still increasing. Although the rate of growth of debt on loans and other types of credit has slowed to 4.1 per cent over the last twelve months, the total amount of money owed by individuals in the UK by the end of November last year was a staggering £1,456 billion, which shows an increase of £56 billion in just one year.

The total amount of lending based on secured loans and homeowner loans accounted for £1,222 billion and the rate of growth in this area has slowed, due to the credit crunch forcing banks and building societies to restrict their lending criteria.

Total consumer credit lending, which includes personal loans, credit cards and overdrafts, has increased by 5.2 per cent in the year to November, to reach a level of £234 billion. To break the figures down to an individual basis, the average level of debt is £9,600 per UK household, not taking into account mortgages, but if the figures are limited to those families who have an unsecured loan of some kind, this increases to £21,875.

Average debt in the UK including mortgage loans now stands at £59,670 and every adult owes on average £30,420. The average size of a mortgage is currently £104,058.

To put this into some kind of perspective, the level of personal debt in the UK is increasing by £1 million every ten minutes. Individuals will borrow an additional £154 on loans and credit cards and they will pay an incredible £252 million in interest just today alone!

The average amount of personal debt per UK household will increase by £6.30 today, 298 individuals will be declared bankrupt, or insolvent and 2,430 County Court Judgements (CCJ’s) will be issued today. I think I need a beer after that, could anybody lend me a fiver?

Property prices have dropped to a level where many experts believe they have now reached the bottom of the market and with interest rates the lowest they have been in many years, the monthly cost of a homeowner loan has dropped significantly, making the process of buying a new home cheaper and more affordable than it has been in a long time.

It now seems that this optimism is finally starting to filter through to consumers who may be considering buying property, but so far have been putting off making a decision and waiting for the right time.

According to a new survey from one of the UK’s largest conveyancing firms, Barnetts Solicitors, public confidence in the UK housing market is at a high level, with more than half of those interviewed believing that the market will recover throughout the course of this year.

The Royal Institute of Chartered Surveyors (RICS) has claimed that the market has already bottomed and has predicted rises of around 10 per cent in house prices in 2009. The only thing now holding back the market is the lack of available finance from banks and building societies, through homeowner loans and other secured loans, but with speculation about the Government providing funds for a further bail out of Britain’s banking and loan sector, this could also be a possibility.

Richard Barnett of Barnetts solicitors said “This is a strong sign that people expect the markets to pick up before 2009 is out, once the current correction for previous over inflation completes. This is exactly the kind of optimism we will need to kick start the recovery process.

As RICS and the National Association of Estate Agents have suggested, many in the industry expect the recovery process to move rapidly, mirroring the speed of the slump itself set in. The challenge for us now is to be poised to respond to the upturn and the opportunities it will bring, but demonstrate flexibility and resilience until that time comes.”

As a result of this, a large number of people, many of whom have always been accepted for credit in the past, are now finding that they are being rejected when they apply for a new personal loan or credit card.

There is likely to be an increased number of loan applications throughout the course of January as people struggle to find ways to pay for the overspending they did at Christmas and it is also likely that a higher than normal percentage of these will be rejected by their prospective lender.

In these circumstances, many people will simply move on to the next loan provider and apply with them and carry on this route until they find a company who will accept them, but borrowers are now being advised that this is not the best course of action to take.

If you have been rejected for a personal loan, or credit card, it is advisable to wait at least three months before re applying to another company, as each lender will carry out a credit score on every application. Each credit score and every rejection will leave a mark on an individual’s credit record, reducing the overall score and making it even harder to be accepted for the loan they require.

The other good piece of advice for someone who has had a loan rejection, is to obtain a copy of their credit file from one of the three major credit rating agencies (details of which can be found on this website). This will show an individual’s credit score and also if that person has any black marks against their name, such as missed payments, defaults or County Court Judgements.

If there is anything outstanding, this gives the person the opportunity to bring any outstanding accounts up to date and repair their credit record, giving them a better chance of success in three months time, when they re apply for a personal loan.

According to the latest survey from the Halifax, the cost for someone wanting to buy their first home is now at the most affordable level it has been for more than five years. The Halifax, one of Britain’s largest homeowner loan providers, regularly reviews the average price of a house to average earnings ratio, and the figures have shown that affordability for first time buyers has improved continuously for the past eighteen months, reaching a ratio of 4.56 in November 2008.

This is the lowest level recorded since July 2003, when the ratio stood at 4.54. At its highest level in July 2007 the same figure was 5.84, meaning that a first time buyer would have to spend almost six times their salary to be able to buy an average house.

The review, which is carried out on a quarterly basis, follows the average price of properties against earnings across 406 local authorities and has found that the number of areas where housing is now classed as affordable has increased by threefold, with Yorkshire, Humberside and Scotland being the most affordable areas to buy a property.

Due to this increased affordability, it should now theoretically be easier for a potential first time buyer to be accepted for a homeowner loan or mortgage, which in turn should provide a welcome boost to the housing and homeowner loan markets across the board.

Martin Ellis of the Halifax said “There has been a marked improvement in housing affordability in many parts of the UK. First time buyers, in particular, are benefiting, especially outside the South of England and the Midlands. We expect this trend to continue in 2009.”

A large number of experts within the finance and personal loan industry are up in arms at the proposals and now a new survey from MoneyExpert.com has shown that a large percentage of people applying for a new loan will probably end up without this important protection, if the plans are carried out.

The survey, which was conducted amongst 1,440 people last month, has shown that around two thirds of those interviewed feel that they should be allowed to take out PPI at the same time as a loan.

More worryingly, around twenty per cent of people said that if they were not offered PPI at point of sale of the loan, they probably would not bother to take it out at all and a further 42 per cent said that they would be likely to forget to apply for PPI at a later date.

The idea from the CC is that people would have the opportunity to shop around for a more suitable product and possibly save themselves a considerable amount of money on premiums, but the reality is that most of these people would not bother with cover at all, or not know where to begin looking for alternative cover.

Sean Gardner of MoneyExpert.com said “The Competition Commission deserves support in its attempt to improve the sale of Payment Protection Insurance in the UK, but doesn’t deserve support if its proposals lead to people missing out on insurance if they need it. The likelihood is that too many people who want insurance and who ought to at least have the opportunity to consider it will lose out as a result of the proposal to ban the sale of PPI along with credit.”

Home Equity Withdrawal (HEW) schemes which use a secured loan or a re mortgage loan have been extremely popular over the past few years, as house prices in the UK have soared, creating large equity balances in many homeowner’s properties. But since the start of the credit crunch this type of borrowing has slowed, largely due to falling house prices reducing the amount of available equity and increasing the overall loan to value ratio on people’s homes.

The latest statistics have revealed that in the three months between July and September this year, there was a negative figure for equity loans of -£5.7 billion. This follows a negative figure in the previous three months of -£2 billion, the first time there has been a drop in this type of loan since 1998. This means that on average, rather than taking out additional secured borrowing on their homes, the UK home owning population has actually repaid around £7.7 billion of secured loans off their properties within a six month period.

Part of this change is undoubtedly due to banks and building societies tightening their lending criteria and restricting the amount of new loans they offer, but it also shows that home owners are now realising that the value of their homes and therefore the available equity is falling, making them concentrate on repaying their secured loans rather than taking on additional debt.

These figures show a huge change from last year, when £11.1 billion was taken out of properties as equity loans between July and September and even £5.6 billion was released over the first quarter of this year.

A large number of experts believe that the key to financial recovery lies in the housing and homeowner loan markets, but Government assistance is still required to provide the financial boost which could help restore liquidity for secured loan providers.

One estate agent, Chesterton Humberts, has claimed that the housing market has now reached its lowest point and there are a large number of potential home buyers wanting to enter the market, but who are being held back by their inability to obtain the necessary funding through a suitable secured loan or mortgage.

They believe that the Government should take action to improve lending on homeowner loans, by using nationalised banks such as Northern Rock and Royal Bank of Scotland, particularly in the first time buyer sector, as the current lack of liquidity is the only factor holding back many potential home owners.

Robert Bartlett of Chesterton Humberts said “Potential buyers are now in far greater numbers than in previous months, believing we are very close to the bottom of the market, with the number of offers being made, bouncing back to levels above those seen a year ago.

However, until the banks start lending again we are unlikely to see a measurable increase in transaction volumes.” He also said that he thought the lettings market would remain strong through the coming year as potential buyers continued to save up sufficient deposit in order to reduce the loan to value ratio they required for a house purchase.

In line with this news, Loanmakers, one of the UK’s largest personal loan packaging companies has just announced its business results for the first half of the year and, not entirely surprisingly, has shown a massive downturn in new business sales, with a pre tax loss of £1.6 million.

This compares with a profit of £346,000 for the company for the first six months of 2007 and just goes to show how things have turned around within the personal loan industry.

Loanmakers have been forced to make significant levels of redundancies as new loan applications have slowed throughout the year and blame the economic slow down and credit crunch for the poor results, along with tightening lending criteria from loan providers and falling house prices reducing equity levels available for secured loans.
 
Earlier this year, shareholders in Loanmakers rejected an offer to inject a further £1.86 million into the company.

Commenting on the figures, Ges Ratcliffe of Loanmakers said “Relations with both lenders and introducers remain positive, but given the current economic outlook it is unlikely that trading performance will improve in the second half of the year.

The board is extremely disappointed that the recently proposed underwritten open offer was rejected by shareholders as this represented an opportunity to inject capital into the business. Given this disappointing outcome the board continues to review its options for the group.”

The worsening economy and liquidity problems for the banks has meant that lending has been severely restricted and those who offer secured loans have become extremely selective about who they are prepared to grant a loan to.

With fewer and fewer attractive secured loan deals entering the market, many people with an existing homeowner loan are now discovering that the best and cheapest option for them is to remain on their existing lenders standard variable rate, once their current initial deal has ended, despite the fact that a large number of lenders would actually like their customers to move their loan to another company, something which would have been unheard of just over a year ago.

For new borrowers who are thinking about moving house, or buying for the first time, the situation is likely to remain difficult with regard to obtaining a homeowner loan for some time to come yet, as new funding remains limited.

Louise Cuming of Moneysupermarket.com said “Lenders have found their comfort zone of mortgage approvals so the low figures we’ve seen recently will continue. In this low rate/low risk environment, the challenge for lenders will be profitability and targeting the right borrowers.

Increasingly borrowers will be happy to remain on the standard variable rate when they come to the end of their product. This is loyalty at an unacceptable cost to the lenders given some of the low standard variable rates available. We’ve already seen a flurry of conditions preventing borrowers from benefiting from the SVR rate and I expect that to continue.”

We have already seen significant reductions in the monthly cost of a secured loan, as interest rates have fallen from 5.0 per cent in September this year to reach an all time low level of 2.0 per cent in December. For a borrower with a typical homeowner loan of £150,000, on a tracker rate, this means a monthly saving of around £375 in interest payments.

Some experts in the financial markets are now predicting that we could see interest rates in the UK drop as low as zero per cent during next year, as the economy continues to slow down.

Jonathan Loynes of Capital Economics said “There doesn’t seem to be any insurmountable technical obstacles to interest rates falling to zero in the UK.” The Bank of England’s Monetary Policy Committee (MPC) appear to now be quite keen to lower interest rates sooner rather than later, particularly since the rate of inflation is now falling back towards Government target figures, thereby taking pressure away from further cuts in interest rates.

In fact the MPC were actually considering a larger reduction in December than the 1.0 per cent which was finally agreed.

So what does this all mean for borrowers in the UK? For those individuals with a tracker rate on their homeowner loan, or even those paying the lenders standard variable rate, it is likely to mean further savings in their monthly expenditure, although they should check their lender’s small print on minimum rates payable.

New fixed rate mortgages and homeowner loans do not seem to be getting any cheaper and as we have already mentioned in a previous report, personal loans seem to be becoming more expensive due to the higher risks now associated with this type of lending.