With the current state of the UK economy and many people across the country struggling with their finances and keeping on top of their various debts and loan repayments against a backdrop of rising inflation and falling wages, it might be expected that the level of bad loan debts and loan arrears would increase significantly as a result.
However, the latest figures from the financial regulator, the Financial Services Authority (FSA) have shown that the level and number of outstanding loan arrears cases on home owner loans and mortgages in the UK has actually fallen.
The figures have shown that there were a total of 301,800 individual home owner loans and mortgages which had loan arrears between October and December last year, which was down from 303,200 during the previous three month period and 313,200 loan arrears cases for the same period twelve months earlier.
The number of new loan arrears cases also fell by comparison with the same time twelve months earlier, to 35,000 new loan arrears cases, a reduction of three per cent, although there was an increase of 1 per cent on the previous quarter.
As a result of the reduced loan arrears cases, the number of properties being repossessed through loan arrears also fell during the last three months of the year to just 7836 cases, a decrease of 8 per cent on the previous year. There were a total of 34,583 properties which were repossessed by the lender due to loan arrears and defaults over the course of the whole of last year.
Although some specialist lenders are now offering bad credit loans to individuals with an impaired credit history, the figures show that bad credit loans only accounted for less than 0.3 per cent of the overall home owner loan market or the whole of last year.
As the personal loans and unsecured loan markets starts to see some signs of recovery and lenders are beginning to offer competitive deals on their loan products once again, the net result has been particularly good news for potential borrowers who may be looking for a new cheap loan deal.
Interest rates on personal loans in the unsecured loans market have dropped significantly over the course of the past couple of years, with some of the most competitive loan deals being in the £7,500 to £15,000 loan amount bracket, although there have been price reductions across the board.
New research from Moneyfacts.co.uk has found that the average interest rate on an unsecured loan of £5,000 over a term of three years has dropped from 12.5 per cent back in March 2011, to just 11.8 per cent today.
Twelve months ago, the best deal on offer for a cheap loan of £5,000 over three years was a rate of 7.9 per cent and the best loan deal over a two year term stood at a rate of 8.4 per cent. However, this has now fallen to just 6.8 per cent for the best current loan deal over this term.
The Moneyfacts survey also highlighted the best loan deals which are currently available on the market for an unsecured loan of £5,000. The best loan deal was from Hitachi Capital, which advertises a starting rate of just 6.8 per cent for a personal loan. This is closely followed by Sainsbury’s Bank, M&S Bank, Santander and the Clydesdale Bank.
Of course, these advertised loan rates are only available to those borrowers with a perfect credit rating and the actual interest rate charged on a personal loan will depend largely on the personal circumstances and credit rating of the individual who applies for the loan.
The consumer credit market, which includes things such as unsecured loans, overdrafts, in store credit and credit cards, has seen a slight growth in borrowing levels during the month of January, according to the trade body for the loan industry.
The latest figures from the Finance and Leasing Association (FLA) have shown that the level of unsecured loans and consumer credit increased by around 1 per cent throughout the month of January this year, compared with the same period twelve months ago.
The highest growth area within the market was is car loans and new car finance deals, followed by second charge mortgages or secured loans and store instalment credit and loans.
The secured loans market saw its highest level of growth since October last year, with the total number of new secured loans growing by 14 per cent in number and around 30 per cent by outstanding loan amount, compared with loan figured for the same period twelve months ago.
The growth in the UK loans market and the support it is providing for the UK economy as a whole, places even more pressure on the new financial regulator, when it is designing the new legislation which will come into force for the whole of the UK loans market next year.
Stephen Sklaroff from the FLA commented on the timetable for the proposed regulation, he said “The loans market contributes £260 billion to the UK economy annually. Millions of people rely on loans and finance for everything from the car in their driveway to the sofa they sit on each evening. Tens of thousands of high street stores, motor dealers and lenders which provide the loans and credit, need a realistic timeframe in which to prepare for the new regulatory regime.”
The pay day loan industry has been under a lot of criticism for some time now, due to the high cost of loans and especially the high penalty charges on late payments and loan arrears, along with irresponsible lending practices, which have left many people with spiralling debts as a result of pay day loans.
Following lengthy investigations and reports, the Office of Fair Trading (OFT) has finally been given more powers to deal with loan companies who may be causing harm to consumers and as a result, the regulator has issued an ultimatum to pay day loan firms across the UK.
The OFT has given the top 50 pay day loan firms, which account for around 90 per cent of the pay day loan market, a deadline of twelve weeks to change their business practices, or face losing their Consumer Credit Licences and being shut down.
It has also been proposed that the pay day loan market is referred to the Competition Commission after the OFT found problems in how loan companies competed against each other.
It was found that firms are competing on the basis of speed of acceptance for a new pay day loan, rather than on the basis of the cost of a loan and that there is too much reliance on rolling over existing pay day loans into new loans, thereby increasing the cost even further.
Other problems include: loan companies failing to assess affordability before offering a new loan, failure to explain how payments are collected, using aggressive loan debt collection techniques and not treating loan customers in financial difficulty with forbearance.
The OFT has stated that these problems “go beyond non compliance with the law and regulations and that a full investigation by the Competition Commission is needed to identify and, if appropriate, impose lasting solutions to make this market serve its customers better.”
The equity release loan market in the UK has seen significant amounts of growth over recent years, as more and more people use the value locked up in their home to help to fund their retirement, pay off existing loan debts, or help their children and grandchildren with a home owner loan deposit.
The Equity Release Council (ERC), the trade body for the equity release loan industry, has predicted that this year will see even more growth in the market, largely due to new and innovative equity release loan products, as well as increased consumer awareness of equity release loans.
Around 45 per cent of ERC members believe that new loan products will make equity release more attractive to home owners throughout this year and 38 per cent think that increased consumer awareness and understanding of equity release loan products will encourage more people to take out such a loan.
This is the first such survey conducted by the Equity Release Council since it was launched last summer. Previously it was known as SHIP (Safe Home Income Plans), but since that time, the membership has been expanded to include Solicitors, Financial Advisers, charity organisations and surveyors, as well as loan providers.
Nigel Waterson of the Equity Release Council said “As more people approach their later years with a question mark hanging over their finances, equity release loans offer many a common sense and practical alternative to selling their homes or falling back on state support.”
“The safeguards supported by the Council’s code of conduct and the work of our standards board are designed to protect consumers’ best interests and mean that over 55’s in 2013 can engage advisers with confidence to discuss how equity release loans can benefit their retirement.”