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The recent cuts which have been made by the Bank of England in the base rate of interest have come as a welcome Christmas present for those individuals who have existing secured loans and mortgages, particularly those who opted for a tracker rate who have now seen dramatic decreases in their monthly loan repayments over the course of the past three months, but banks and building societies are not quite as enthusiastic about the news as their customers seem to be.

Following the first cut in interest rates, of 1.5 per cent three months ago, the majority of lenders withdrew all their tracker secured loan products for a time.

These have steadily returned to the market, but with less attractive rates than previously and as the base rate has fallen further, there are now fewer and fewer options for someone who may be looking for a secured loan on a tracker product and a large number of those which have been re introduced now have collared rates, which will not allow the pay rate on the loan to decrease any further, regardless of what the base rate does.

According to Moneyfacts.co.uk, only ten lenders have so far passed on the full 1 per cent most recent rate cut to their customers by reducing their standard variable rate on secured loans.

Darren Cook of Moneyfacts said “Following the latest base rate cut, the average rate for a two year tracker has only reduced by 0.85 per cent, with the door of opportunity closing fast for new borrowers, with only 45 tracker products available overall.

As happened after November’s rate cut, new tracker rate mortgage deals quickly disappeared from view, but this time around they have failed to return to the market, mounting speculation that mortgage providers have strong views and expectations that the base rate will be cut again.”

We reported recently on how the Competition Commission (CC) had issued a proposal to ban the sale of Payment Protection Insurance (PPI) at the same time as the sale of any type of personal loan, or other credit agreement.

The CC also proposed a complete ban on single premium PPI policies. This was due to the extremely large number of complaints of miss selling which have been made by consumers in relation to these products and also to allow people taking out a new personal loan to be able to shop around for the most competitive cover to meet their needs. The ban on selling PPI at point of sale of a loan also related to Mortgage Payment Protection (MPPI), which is the equivalent policy for home owner loans and mortgages.

The Association of Finance Brokers (AFB) has welcomed the proposal to enforce a 14 day waiting period before PPI is sold to accompany a personal loan or credit card, but feels that a complete ban on the sale of single premium policies would actually be detrimental to consumers as this would have the effect of limiting choice for customers to protect their loan repayments, particularly in these uncertain economic times.

The Association of Mortgage Intermediaries (AMI) has also called for MPPI to be excluded from the proposals, claiming that this type of cover is very different from other types of PPI policy which is used to protect repayments on personal loans and credit cards and also adopts a different sales approach, largely from advised sales processes from professional advisers who work for the consumer on an independent basis.

A spokesman commented on the proposals “We were pleased to see confirmation that the prohibition of the active sale of PPI by a customer within 14 days of the sale of credit had not been applied to intermediaries and only distributors. However, we also call again for the Commission to acknowledge and understand the benefits to consumers of using intermediaries who act as an agent of the client.”

There has been some hint of good news for those individuals with a secured loan, or those looking to buy their first house over the course of the past few months.

Property prices have fallen to more affordable levels for those wanting to buy and interest rates on secured loans have fallen by record levels in the space of two months, with the prospect of further reductions in the New Year, saving borrowers a large amount of their regular monthly loan payments and thereby freeing up more disposable income to enable them to meet their other financial commitments.

Despite this reduction in the cost of a loan, affordability is still an issue for many homeowners who are continuing to find it difficult to keep up with their loan repayments, according to the latest survey from the UK housing review, which has been jointly conducted by the Building Society’s association and the Chartered Institute of Housing.

The survey found that the average cost of owning a home had risen to 22 per cent of household earnings and although this may not seem a lot to some people, the figure has risen from a low point of 12 per cent in 1994. The highest costing area, not surprisingly, is London, where the average is 26.8 per cent of earnings and the lowest is Scotland, with only 15.2 per cent.

Neil Johnson of the Building Society’s Association said “Although the headlines are dominated by talk of falling prices, with the review finding that the long term supply and demand problems remain, it looks like the affordability problems will not have left the market by the time that buyers return.”

Since the beginning of the credit crunch last year, it has become ever more difficult for someone to obtain finance through a traditional personal unsecured loan with their bank, or other lender due to the much more restrictive lending criteria which is being enforced by loan companies.

As a result of this, an ever increasing number of people who are desperate for a loan are turning to doorstep lending companies, to help them meet their financial needs, often ending up with a very expensive loan.

Following a complaint made by the National Consumer Council (NCC), now known as Consumer Focus, regarding how customers had very little way of making a comparison between different doorstep loan companies, a new website has been launched by the Competition Commission to try and help those borrowers who are looking for a doorstep loan to be able to make an informed choice with regards to the lender they choose, although by the very nature of this type of lending, a borrower is more likely to take a personal loan out with whichever company happens to knock on their door.

Lenderscompared.org.uk has claimed to be set up in association with various consumer organisations, including the National Consumer Council, amongst others, but the NCC has now said that it is disassociating itself from the website.

A spokesman for the organisation said “We don’t know how our name got in there. They are obviously trying to associate us with their work. We’re not against doorstep lending per se, but we believe there is not enough competition in the market. We recognise it is an important source of credit for some people, but we want a competitive lending market, which it is not at the moment. Some of the rates charged on this site make it extortionate.”

We reported yesterday on how the government has introduced a scheme, as part of its mortgage rescue package, whereby a borrower with a homeowner loan will be able to suspend the interest payments on their loan for a period of up to two years if they are facing repossession through losing their job.

On the face of it, this seems like a good idea which could save many people from losing their homes, but experts are now claiming that borrowers with homeowner loan arrears should be wary of the scheme, as it could end up costing them much more than the original amount over a longer term of years.

UK home owner loan companies have a legal right to pursue a borrower for arrears for a period of 12 years, although the Council of Mortgage Lenders (CML) has agreed to reduce this to six years and concerns have been raised that someone who opts for the loan interest deferral scheme could be chased by their lender for six years after the original problem started, causing additional stress for the borrower, not to mention the additional cost of the compound interest over the period.

Many experts believe that the UK is in for a long recession and if someone were to take a two year break from their home owner loan interest payments there is no guarantee that their personal financial situation will be any better in two years time, thereby leaving them with an even bigger problem of increased repayments and higher arrears than they were facing two years previously.

Some say that this scheme is doing nothing more than postponing the inevitable, but making the situation worse and borrowers should take it into their own hands to sort out some sort of suitable protection plan, such as payment protection insurance (PPI) for their home owner loan, to avoid the problem altogether.

As part of the rescue package which has been launched by the Government to help home owners who are struggling to keep up with their repayments on their secured loan, a new initiative was unveiled last week which could take a lot of the pressure off people who have lost their jobs and may well otherwise be facing repossession for defaulting on their loan repayments.

The new scheme allows a borrower to defer the interest payments on their loan for a period of up to two years, if they are unable to afford to make the payments in the event of them being made redundant and will provide help for anybody who has an existing secured loan or mortgage of up to £400,000.

Although the scheme has been widely welcomed by industry experts and is likely to save a large number of home owners from losing their homes, it should be noted that this is not a benefit scheme where the loan interest payments are made for the borrower, it is a deferment scheme whereby the borrower will still have to make the loan repayments at some point in the future and should be thought of as a safety net to see someone struggling with their loan through a difficult time.

One industry expert said “It is imperative that those people that need to take advantage of this welcome government intervention realise that they need to start repaying their mortgage interest on their own as quickly as possible.

The longer they put off paying means that they end up owing more in the long term as interest on the interest will keep ratcheting up. If those struggling to meet their repayments don’t quickly see a change in their circumstances, namely find a well paid job, then they may well end up in an even worse position than they were in when they applied for this state aid.”

It would appear that since the effects of the credit crunch are finally being felt by the majority of the UK population and with the prospect of a looming recession to look forward to, the penny has eventually dropped for many individuals with personal loans and credit card debt, as they begin to make a special effort to actually repay some of their debts, according to a new survey from Unbiased.co.uk.

The survey has shown a marked shift in the nation’s financial priorities, as for the first time since the survey was started eight years ago, there was a net reduction in the amount outstanding on personal loans and other debts over the course of the third three months of the year.

In total, borrowers managed to pay off around £23 billion more of loan debt than they took out in new loans. But it would seem that borrowers have given up saving in order to repay their loans, as net saving levels dropped over the same period to a low of £19.3 billion, which was almost half the level of savings made during the second three months of the year.

This shows a huge change of emphasis in the attitude of people in the UK. During the second quarter of the year, for every pound put into savings, 15 pence was taken out in new personal loans, whereas over the course of the third quarter, for every new pound in savings, we actually repaid £1.24 of debt.

This shows that individuals are starting to become concerned about their financial future and want to get their financial affairs into the best shape they can during uncertain times.

Although it is commendable that people are repaying their loan debts, the fact that savings levels have dropped so significantly is a concern, although this could be accounted for by falling interest rates on savings accounts and a general lack of consumer confidence in the banking system at the current time.