It is quite likely that everybody in the UK who is currently making repayments on a mortgage or homeowner loan, breathed a sigh of relief last week, when the Bank of England announced that there was to be cut in the base rate of interest of 0.5 per cent, which would then undoubtedly be followed by concerns over whether or not their particular lender would pass on the reduction to its customers.

Those individuals with a tracker mortgage loan know for a fact that their payments will reduce within one month of the announcement, as those with a fixed rate loan also know that their payments will remain the same.

The major high street banks seem to be the first ones to react to the reduction in the base rate and pass on the savings to their customers.

The HBoS group, which includes the Halifax, the Bank of Scotland, Birmingham Midshires and Intelligent Finance, was the first to announce a cut in their standard variable rate (SVR) and this was closely followed by the Lloyds TSB group, Royal Bank of Scotland and Barclays, although HSBC is still reviewing its standard variable rate, along with most of the other high street banks.

Building Societies, on the other hand, have been much slower to react to the rate cut, with none of the leading homeowner loan providers reducing their rates as yet, although most have said that they are looking into the situation to ensure that their products remain competitive in the market place.

What many people don’t realise is that although the bank rate has dropped, the rate at which banks themselves borrow from each other, LIBOR (London Inter Bank Offered Rate), has actually increased to 6.28 per cent and until we see a reduction in this rate, lenders are less likely to cut their loan rates to their own customers.

Since the beginning of the credit crunch last year, we have seen a steady decline in the number of house sales and applications for mortgages and loans, as many potential buyers decide against committing to a new larger loan in the face of the current economic slow down.

The extent of this drop in mortgage lending has just been highlighted by the latest figures from the Council of Mortgage Lenders (CML), who have revealed that new loans for house purchase have fallen by 63 per cent over the course of the last twelve months.

The figures show that there were a total of 42,200 new homeowner loans issued in August this year, with a value of £6 billion and although this may sound like quite a lot of money, it is actually the lowest amount of new lending recorded since the CML started to keep records at the beginning of 2002. Out of this amount, more than one third of loan applications completed were for first time buyers, who borrowed a total of £1.9 billion across 15,600 individual loan and mortgage plans.

First time buyers seem to be adopting a more sensible approach to buying a house, which has probably been caused by a tightening of lending criteria from mortgage loan providers and also a drop in house prices, with the average first time buyer now borrowing 84 per cent loan to value and taking a loan of £106,754, the lowest amount for both figures since May 2006.

Those people moving home accounted for 26,600 new loans, with an average value of £126,000 and a loan to value of 69 per cent. Remortgage cases were also down in numbers from August last year, but only saw a 20 per cent reduction, with 74,000 new loans worth around £10 billion.

The CML said that the measures which were announced by the Government earlier this week would certainly have a positive influence on the housing and mortgage loan market, but it would take some time for this to take effect.

Following the turmoil and upheaval in the UK banking system last week, the Government has announced that it will invest £37 billion into three of Britain’s largest banks as part of a financial rescue package, in exchange for shares in each of the companies and effectively part nationalisation of the institutions.

The Government confirmed the news on Monday morning this week, following large amounts of speculation since the end of last week and the weekend. Under the recapitalisation scheme, as it is known, the three banks to receive funding are Royal Bank of Scotland (£20 billion), Halifax Bank of Scotland group (£11.5 billion) and Lloyds TSB (£5.5 billion).

As a result of the cash injections, the Government will receive a stake in each of the companies, allowing it to be able to appoint its own directors to the boards of each of the banks, who will be able to make executive decisions in the day to day running of the banks and following the investment, the UK Government will now actually be the largest individual shareholder in the Royal Bank of Scotland. Although RBS will receive the money straight away, Lloyds TSB and HBoS will not receive any funding until the merger between the two companies has been completed.

All the banks in question will be in a much stronger position following the move and will be able to take advantage of the Governments inter bank lending guarantee, but they will have to meet certain conditions to qualify for the scheme.

Firstly each of the institutions must still provide competitive mortgage and loan products for house purchase and loans to small businesses. Also they must provide genuine support and help for home owners who are struggling with their mortgage or homeowner loan repayments, there will be a restriction on the level of pay and bonuses for top executives and the Government will have the right to appoint directors to the boards of each bank.

When the recapitalisation scheme was first announced, it looked as though Barclays would also take part in the scheme, but it has since opted out of the idea, preferring instead to raise the necessary funds in other ways.

As the credit crunch continues to bite hard into the UK economy, it seems that it is not only the major high street banks and building societies which are suffering hard times, but also the average person in the street is struggling with their financial situation in the face of the current economic crisis.

An increasing number of individuals are now seeking advice with regard to bad debts and increasing levels of arrears on their mortgages and secured loans.

The news comes from the Citizens Advice Bureau, who have reported the fact that they have seen a huge increase in the number of enquiries from consumers with regard to increasing arrears and financial difficulty on their personal loans and mortgages.

According to the latest figures, the Citizens Advice Bureau have seen an increase of around 35 per cent in the number of enquiries relating to mortgage and secured loan arrears over the course of the last twelve months, which equates to a total of an additional 77,324 borrowers facing financial troubles since October last year.

The situation also seems to be getting worse, as the number of arrears related enquiries between July and September has risen by an additional 51 per cent above the same period in 2007.

The problems appear to be limited to secured loans and mortgages only however, as the Citizens Advice Bureau have also reported that they have seen a decrease of around 4 per cent in the number of enquiries about unsecured loan and credit card debt over the past twelve months. The most common reason for arrears is unemployment, or business failure, along with ill health and breakdowns in relationships.

David Harker of the Citizens Advice Bureau said “The number of enquiries about basic essentials is worrying and these figures show how the current economic situation is hitting vulnerable and low income households the hardest.

To prevent this situation worsening, it is vital that mortgage lenders do everything in their power to help people in arrears to come to a workable solution over repayment arrangements, rather than piling on extra charges. All creditors should treat borrowers in arrears fairly and sympathetically, negotiate with borrowers in trouble and only use court action for mortgage arrears as a last resort.”

Most home owners living in the UK dream of the day when they have repaid their mortgage or homeowner loan and can start to save money on a regular basis, looking forward to a long and prosperous retirement without any financial worries, but sadly this is not likely to be the case for many individuals who are currently aged 55 or over.

According to a recent survey by the website Impartial, somewhere in the region of 1.4 million home owners in the UK over the age of 55 still have an outstanding mortgage balance on their home, with an average loan amount of £55,046 and a remaining term of at least ten years, which means that many people will be forced to keep up their mortgage repayments during retirement.

It is estimated that the average mortgage loan repayment for these individuals is around £700 per month and could mean the difference between a comfortable retirement and being forced to continue working, having to sell their home, or taking out an equity release mortgage to repay the loan.

The survey also showed that although younger generations currently had much higher debt levels on their mortgage loan, on average these would be repaid much earlier than the so called “baby boom” generation. Interestingly enough, a much higher percentage of these younger borrowers sought independent financial advice before taking out their loan, whereas around a third of older home owners sorted their loan out themselves.

Karen Barrett of Impartial said “This study suggests that many baby boomers are facing up to the reality of still having a mortgage debt close to or even beyond their retirement age. It is crucial that the next generation of home owners do all they can to be debt free earlier, as this will give them much more financial freedom to prepare for retirement. Taking impartial, whole of market mortgage advice should help make sure that while having the home you want you are also protected against having debts beyond retirement.”