Since the Bank of England reduced the base rate of interest on homeowner loans earlier this year, many borrowers with variable and tracker rate loans secured on their properties have seen significant reductions in their monthly repayment amount, with some individuals who have benefitted from the full amount of the rate cuts on large secured loans seeing their monthly repayments fall by hundreds of pounds each month in some cases.

However, despite the base rate of interest falling from 5 per cent in October last year, to just 0.5 per cent currently, the majority of borrowers are not taking advantage of the lower repayment amounts to reduce the outstanding balance on their loans.

The news comes in the latest report from the Bank of England, who claim that a large number of borrowers are using the savings they make on their home owner loan repayments each month in other areas, such as building up their savings levels, or subsidising their cost of living expenses, rather than using the money to make overpayments on their loans in order to reduce the balance quicker than they normally would and therefore potentially reduce the term of the loan by several years and save a small fortune in interest payments.

In a statement, the Bank of England said “There has been no significant change in other lump sum type repayments or regular repayments. Lenders have reported that, while some households may have used part of the gain from lower interest payments to increase the rate at which they are paying off their mortgages, others may be making lower repayments because they are experiencing financial difficulties or are more uncertain about their future financial position.”

For someone applying for a homeowner loan or mortgage a couple of years ago, it was no real problem to be able to obtain a loan of 90 or 95 per cent loan to value (LTV), particularly if you were a first time buyer.

And if you only required a secured loan of around 85 per cent LTV, there would be no shortage of available deals at all. How times change! Since the beginning of the credit crunch and the drop in house prices, banks and building societies have been continuously restricting their lending criteria, with many only allowing a maximum loan to value ratio of 75 per cent, or even less.

Although there are still some lenders which offer loans in excess of 75 per cent LTV, in many cases the interest rate charged on these products jumps significantly from lower loan to value levels. Although higher loan to value amounts represent a higher risk for lenders and therefore will understandably charge a higher rate, a recent survey by the price comparison site Moneynet.co.uk has accused some lenders of boosting their profits through high loan to value products and that a borrower could actually end up paying an additional £14,000, or £236 per month, for an 85 per cent LTV product, instead of a loan of 75 per cent LTV, over the full term of the loan and this amount would be based purely on additional interest.

A spokesman for Moneynet.co.uk said “There will be many people now faced with being on the wrong side of the 75 per cent line on the back of the sharp correction in house prices. Even though such borrowers will have an unblemished repayment history over a number of years they will be penalised with loaded interest rates purely due to the fact that the value of their property has fallen.

With house price falls starting to slow you have to start to question how much of this difference in pricing is risk related and how much is nothing more than a mechanism to boost profits at the customer’s expense during these difficult times.”

There are definite signs starting to show up that the housing market is on the road to recovery.

Relatively low house prices and low interest rates, leading to cheap loans, has encouraged many potential home buyers into making the move which they have been putting off for the past two years and talk of recovery and an increase in prices has prompted many buyers to take the plunge whilst property remains cheap.

However, due to this sudden surge in demand, there is now a shortage of properties on the market and according to the latest figures from the National Association of Estate Agents (NAEA), there are around four potential buyers for every house on the market.

Gary Smith of the NAEA commented on the figures, he said “This is really good news for the housing market and the UK economy in general. With mortgage interest rates at historically low levels and prices now far more realistic than in previous years, home ownership in the UK seems to be set to lead the UK out of the recession.”

Despite this increase in sales activity, new lending on homeowner loans fell again in May to approximately £10.3 billion, which shows a 2 per cent drop on the figure for April and is still less than half the figure for the same time last year, although these figures also include remortgage cases as well as new loans, which is likely to have a negative impact on the overall loan figures.

A spokesman for the Council of Mortgage Lenders (CML) said “While recent signs from the housing market have been more encouraging, we do not anticipate a significant recovery in activity in coming months. Lending volumes appear to have stabilised at extremely low levels, but the weak labour market and lenders’ limited access to funding will constrain activity for some time yet.”

It’s that time of year again, when thousands of new and existing university students apply for next year’s student loan, in order to keep them in beer and baked beans!

As part of this process, parents will be expected to submit details of their income and savings for the previous year to support the loan application. For those students and parents who are applying for a student loan for the first time and need to know a bit more on the subject, it is worth taking a brief overview of just how these extremely cheap loans work.

A typical student is expected to leave university with somewhere in the region of £20,000 worth of debt and the bulk of this is likely to be on a student loan. The main benefit of this type of loan, is that whilst you are still a student, there are no repayments to be made and interest will not be charged until the course in completed, even then this is usually only in the region of 2 per cent, making it a very cheap loan, compared with a normal personal loan, for example.

No repayments are due on a student loan until your earnings reach a level of £15,000 per annum, at which time 9 per cent will be deducted from salary automatically. The maximum loan is £4,405 per year, plus tuition fees and there is a supplement for students in London, although this maximum is means tested on parental income.

The main drawback of course is that students are still leaving university with large debts and although these are cheap loans, they are still a commitment and can affect the ability of the graduate to obtain other personal loans and mortgages. Therefore it is important that, although the rate on a student loan is extremely low, it is repaid as quickly as possible once you start work in order to free up your future credit availability.

Despite the fact that the average price of a house has fallen significantly over the course of the past two years and that the interest rates on homeowner loans are currently as low as they are ever likely to be, a growing number of the younger generation have become less enthusiastic about the prospect of owning their own home, according to a new survey which has been organised by the Chartered Institute of Housing (CIH) and carried out by YouGov amongst a mixed group of people who rent privately, are social housing tenants or already have an existing homeowner loan.

The survey found that just over one in three young people aged between 18 and 24 were likely to consider applying for a loan to buy their own property at the present time and in the age range 25 to 34, the figure was just 69 per cent, compared with 83 per cent only twelve months ago.

The main reason for this change in attitudes is largely due to the current economic slow down and recession, along with the fact that it has become much harder to obtain a suitable homeowner loan, particularly at higher loan to value ratios, which is putting off many would be first time buyers from entering the housing market.

There now seems to be a changing attitude amongst young people towards home ownership, with individuals leaving it much later in life before they consider applying for a homeowner loan. Sarah Webb of CIH commented on the changing figures, she said “We have driven too many people into unsustainable owner occupation and we need to make a far better job of putting renting and owning on a level playing field. A generation has grown up believing it has to own at any cost, in part because we have not provided them with decent information about the alternatives. We can not repeat this mistake with future young people.”