We reported yesterday on the likely movement of the base rate of interest over the course of the coming months and next year and what effect it would have for those individuals with secured loans and homeowner loans, particularly those with a tracker rate on their loan.

We also mentioned about how some lenders have introduced what is known as a collared rate on their tracker products, which means that there will always be a minimum interest rate applied to the loan, regardless of what the Bank of England base rate of interest is standing at.

But now the Financial Services Authority (FSA) has been investigating collared, tracker secured loans and claims that many of the banks and building societies who have introduced such measures on their products will not actually be able to enforce them, should the base rate drop below the collared level.

The news was announced earlier this week by Jon Pain of the FSA, whilst he was speaking at the Council of Mortgage Lenders (CML) conference. He claimed that if the minimum rate was not clearly indicated in the Key Facts Illustration (KFI) and Mortgage loan offer, it was likely that such a restriction would be enforceable by the lender.

Mr Pain said “Whilst tracker interest floors can be a legitimate term of a mortgage, this can only be if it is clear and unambiguous to the consumer and is consistently and prominently spelt out in the initial KFI and offer document throughout the sales process. If it is not, you run the real risk of both breaching our disclosure requirements and having an unfair contract term you can’t enforce.”

Many lenders could fall into this trap, as details of rate collars have been removed from their documentation over the past couple of years. A prime example of this is the Halifax, one of the UK’s biggest lenders, who have a 3 per cent collar on their tracker products, but have excluded details of this from their literature since 2005. If rates continue to drop further, it is probable that this lender. Along with many others, will be forced to pass on the rate cuts to customers with homeowner loans on a tracker rate.

It is starting to look quite likely that borrowing money through a secured loan will be getting even cheaper than it currently is.

Over the past couple of months, many borrowers have seen the cost of their monthly loan repayments reduce as the Bank of England has cut interest rates by 2 per cent over two consecutive months.

Of course, those borrowers with a fixed rate on their secured loan will not see any difference, but someone with a tracker loan of £100,000 will now be paying around £166 per month less in interest than they were two months ago.

Despite these recent cuts, many experts are predicting further cuts in interest rates, which will reduce the cost of a secured loan even more and many have speculated that the base rate of interest could be as low as 1 per cent by February next year, with the possibility of an eventual rate of zero per cent.

However, this may not be fully passed on to borrowers with secured loans, as a large number of lenders, even those offering tracker rates, have a collared rate on their products, that is a minimum interest rate which will continue to be charged, regardless of what the base rate does, although not all lenders apply this rule.

Whilst this is good news for those people with loans and mortgages, it’s not so good for people who have savings in banks and building societies, who are likely to see the growth on their savings dwindle to nothing.

Currently the base rate is the lowest it has been since 1954 and it is quite possible that it will be reduced further on Thursday this week (4th December) when the Bank of England’s Monetary Policy Committee (MPC) holds its monthly meeting.

When asked the question “is the glass half full, or half empty?” the typical consumer in the UK is likely to comment that the glass is half empty, with a great big crack down the side of it!

This seems to have been the response to a survey conducted by Lloyds TSB Corporate Markets which asked for customers’ views and thoughts on what would happen with interest rates on loans over the coming twelve months.

Despite the fact that we have seen interest rate cuts of 2 per cent over the past couple of months, making home owner loans significantly cheaper, 40 per cent of the 2,000 people who took part in the survey believed that the cost of their loans would be higher next year, due to interest rate rises and another 10 per cent thought that rates would remain the same as they are currently.

The survey showed that, despite the recent rate cuts and the wide speculation that we could well see further cuts, possibly even before Christmas, with the possibility of home owner loan interest rates below 1 per cent next year, the majority of the UK population remained pessimistic about the cost of borrowing.

When asked about the cost of goods and services, 58 per cent said that they expected prices to be higher next year, although this figure has become more optimistic following the recent reduction in the cost of petrol.

A spokesman for Lloyds TSB said “November’s surprisingly large interest rate cut has so far had little impact on consumer confidence, according to our survey. And despite market speculation that rates could fall even further on Thursday and next year, consumers still believe rates are set to rise.

This will be of concern for the high street because, even with easing price expectations, if consumers remain dubious about the prospect of lower rates, they could hold off on their spending.

But we should not yet lose hope of a burst in spending before Christmas.  A further cut in interest rates this week, on top of today’s VAT reduction, could provide the confidence boost that consumers need. It may well just be a matter of time before consumer expectations adjust to the reality of lower interest rates.”

Over the course of the past twelve months, since the start of the credit crunch, we have been constantly bombarded with doom and gloom relating to the housing and secured loan markets.

With property prices falling, many potential buyers have been sitting on the fence waiting for prices to become cheaper still before they commit to a purchase and even those who have decided to buy anyway have, in many cases, found it extremely difficult to be accepted for a home owner loan or mortgage, due to a lack of funding in the wholesale money markets.

This has led to a general lack of confidence amongst potential home owners, deferring any decision to buy and therefore causing house prices to drop yet further.

But the prospects for potential first time buyers are becoming better all the time. With the average price of a house now between eight and fourteen per cent cheaper than it was at the same time twelve months ago, depending on which survey you read, coupled with the fact that the Bank of England base rate has fallen to three per cent, with the potential for even more rate cuts in the near future, many experts believe that there has never been a better time to buy a house.

The biggest hurdle which now faces a first time buyer is being accepted for a home owner loan or mortgage to help fund the purchase.

Although there are plenty of good, cheap loan deals now available in the market place, the majority of these require the purchaser to have a substantially larger deposit than they did twelve months ago, in many cases only offering a loan to value ratio of between 75 and 80 per cent.

This means that a first time buyer will have to make a special effort to save sufficient funds for a deposit, which is no bad thing in itself, as it is likely to get them into the habit of saving and also by the time they have saved a twenty per cent deposit, house prices may have fallen even further, allowing them to take out a smaller secured loan than they would have needed to originally, giving them extra disposable income to be able to pay their other bills.