As the current recession continues to tighten its grip on the UK economy, an ever increasing number of consumers are starting to worry over fears of losing their jobs and facing arrears and defaults on their loans and other debts, according to a leading advice charity and the Government and businesses should do more to provide assistance for those consumers with personal loans who are most likely to be affected by the current economic down turn.

The Citizen’s Advice Bureau (CAB) has seen a dramatic increase in the past few months alone, in the number of people seeking advice over how to deal with losing their job and help with how to manage their debts, with particular reference to many individuals building up arrears on their personal loans and homeowner loans.

The charity has said that over the course of last year it dealt with more than 900,000 enquiries from consumers who were struggling with loan repayments and worrying about losing their job and responsibility lies with the Government, regulators and companies to take appropriate action to help these individuals.

Meanwhile, the Financial Services Authority (FSA) has published a paper which highlights the risks and problems being faced by individuals with outstanding loans and other debts.

The Financial Risk Outlook emphasises that banks and building societies should ensure that they treat customers with loan arrears fairly. The report also states that consumers must be more careful about taking out new loan products, taking into account the long term cost implication of additional debt commitments and being cautious of entering into contracts which may seem to be too good to be true.

The FSA have also highlighted the need for borrowers to seek independent financial advice before applying for any financial products.

Following the credit crunch, things are starting to become tight for many individuals and households in the UK and as the economy slows further and the recession deepens, many people are looking for ways to cut back on their monthly expenditure in order to make ends meet.

One area in particular which seems to be suffering is that of protection policies people have taken out to protect their personal loans and other debts. Many borrowers are cancelling policies to save money on the monthly premiums, thereby leaving themselves totally unprotected should anything untoward happen to them.

The protection division of the Prudential, Pruprotect, has now warned consumers that cancelling loan protection policies of any kind may end up costing them much more than the savings over a longer term.

Apart from the fact that a borrower would no longer have any cover for their personal loan, which could lead to extreme financial hardship in the event of a claim situation, once they decide to reinstate the cover at a future date the cost of premiums could have escalated dramatically due to their increased age and risk.

Also, if a borrower’s health had deteriorated during this period, there is no guarantee that they would be able to reinsure themselves, leaving their loans and other debts unprotected.

Cancelling loan protection policies of any kind without professional advice could lead to an individual losing their good credit rating, in a best case scenario, all the way to losing their home, if anything were to happen to them and is quite simply a foolish and irresponsible course of action.

Anyone considering doing so, should look closely at their monthly budget to see where else they could make savings before they cancel loan protection plans.

Anybody who is applying for a new homeowner loan, or looking to take out a secured loan on their property at the moment, will have extreme difficulty in obtaining a high loan to value ratio, as practically all banks and building societies have reduced their ratios in view of recently falling property prices and increased risk on secured loans.

Although this may be the case for new loan applicants, there are a large number of borrowers who took out a secured loan over the course of the past couple of years or so who now have a loan to value ratio of more than 90 per cent.

A recent survey from Fairinvest.co.uk, which was conducted amongst 200 individuals, has shown that approximately 21 per cent of people with some type of loan secured on their home currently have a loan to value in excess of 90 per cent and 8 per cent of borrowers have taken loans of between 100 and 125 per cent loan to value.

With property prices falling as they have done, many of these borrowers are now likely to be facing a negative equity situation with their loans, if they aren’t already in this position. Those worst affected will be those who opted for an interest only loan, as they are not reducing the outstanding balance with their monthly repayments.

The more positive information to come out of the survey is that the average loan to value ratio for homeowners is 64 per cent and almost one fifth of borrowers have only taken a secured loan of 20 per cent, or less, of the value of their house.

Although many people panic about negative equity, it is not necessarily a problem unless the homeowner is planning to sell their home at any time in the near future, as prices will eventually return. In the meantime, borrowers should take advantage of low interest rates to overpay on their secured loans and lower the outstanding balance.

When looking for a new personal loan, a large number of people do the minimum amount of research and end up simply approaching their own bank for the necessary finance they need, accepting whatever loan product the bank offers them.

This is often a similar situation with things such as car loans, where the dealership selling the car also offers credit and buyers often take this option without comparing loan deals elsewhere, simply because it saves them the bother of shopping around for the finance they require.

But it is likely that a borrower will get a cheap loan by simply shopping around for a more suitable product. There are a number of price comparison websites which show the extent of different personal loan deals available, also loan brokers can offer advice and search the whole of the market, for both secured loans and unsecured loans, and recommend both the type of loan and the best provider to meet a borrower’s specific needs.

A customer’s credit rating can also make a huge difference as to not only whether or not they might be accepted for a personal loan, but also to the interest rate which they are likely to have to pay.

Someone with a good credit history, of a low level of debts and up to date repayments is more likely to receive a better rate than someone who has missed several payments over the previous months. Borrowers should check their credit file on a regular basis, particularly prior to applying for a new loan.

To improve their credit rating, a potential borrower should ensure that all their existing loan repayments are up to date and not apply for any new credit for about six months, as each application will leave a mark on their credit file and lower their score.

So to summarise, if you are looking for a cheap loan, don’t rush into the first product you see. Check your credit file, use price comparison websites and take professional advice regarding the most appropriate loan for your needs. By taking these simple steps it is possible to save a lot of money both every month and over the term of the loan.

No, you’re not hallucinating, the title of this article is actually correct! Over the course of the past twelve months we have become so used to seeing headlines in the financial news about average house prices in the UK falling again, that it seems almost impossible to think that prices could actually increase.

But according to the latest house price index survey from the Halifax, one of Britain’s biggest providers of homeowner loans and mortgages, the average price of a property increased by 1.9 per cent during January this year.

This is the first time that the index has shown any increase at all since February last year, bringing the average house value to £163,966. Despite this encouraging news, the Halifax have warned that this increase does not necessarily indicate that the housing market is starting to recover, prices are still 17.2 per cent lower than they were at this time last year, but it does suggest that the market may be slowly starting to stabilise.

Although increasing prices may encourage potential home buyers to get back into the housing market before prices go up too far to make them affordable again, the biggest problem they face is that of obtaining suitable finance through a homeowner loan or mortgage. Unless a potential buyer has a large deposit available to reduce the loan to value ratio on their purchase, they are still likely to have difficulty finding a suitably cheap loan.

Apart from the lack of availability of homeowner loans, the current economic slow down in the UK, with recession and rising unemployment currently dominating the news headlines, means that things are likely to remain tough for the loan and housing market throughout the rest of this year.