The number of people suffering from arrears on their home owner loan and even facing repossession has seen a dramatic increase over the course of the past couple of years or so, due to the adverse economic conditions and the credit crunch.

But as the UK is now officially out of the recession, although there are still a large number of borrowers struggling to keep up with their loan repayments, the level of loan arrears and threat of repossession is starting to fall, according to the latest figures from the Financial Services Authority (FSA).

The figures cover the last three months of last year and concur with the statistics on loans and new lending from other organisations such as the Council of Mortgage Lenders (CML) and the British Bankers Association (BBA).

The figures show a decrease in the number of loan arrears cases and the number of people losing their home through repossession. At the same time, new lending increased, with a 2 per cent increase in new loans, although this was 6 per cent lower than the previous three months.

There was a total of £1,207 billion worth of outstanding loans in the UK, an increase of 1 per cent over a year earlier and the majority of these loans were for house purchase, with 62 per cent of all new home owner loans being used for this purpose.

The total number of new loan arrears cases had continued to fall over the course of last year and during the last three months, new arrears cases had fallen by a further 9 per cent. The number of new properties being repossessed due to loan arrears also fell by 15 per cent, to reach the lowest level since the second quarter of 2008.

Bad credit loans and loans with high loan to value and high income multiples also saw a decrease over the course of the year.

Since the Bank of England Base rate of interest for loans fell to its lowest ever level of just 0.5 per cent a years ago, many borrowers have been taking advantage of their reduced monthly loan repayments to overpay on their personal loans and particularly on their home owner loans, in order to reduce the outstanding balance.

However, a large number of lenders apply penalties for any over payments which are made on their loans and in some cases, this can cancel out any benefits to be gained from making overpayments on the loan in the first place.

Despite these penalties, the majority of lenders will still allow borrowers to make over payments of around 10 per cent of the outstanding loan balance each year, without penalty, although for many borrowers this still does not go far enough.

As a result of this and from consumer surveys which have been carried out on their behalf, the Lloyds Banking Group has doubled the amount which borrowers are able to overpay on their loans, from 10 per cent up to 20 per cent, before they start to incur any financial penalties.

The scheme will run for an initial period of one year and will allow those loan customers who want to pay extra to take advantage of the particularly low interest rates while they last. The scheme is scheduled to end on the 31st March 2011.

According to the figures from Lloyds, someone with a home owner loan of £100,000 on a variable rate of 3.5 per cent, will be able to save somewhere in the region of £14,500 over the term of the loan and reduce the overall loan term by three and a half years, simply by paying an extra £50 per month on their home owner loan repayments.

The ability for people looking to buy a house and obtain the home owner loan they require to do so is at the highest level it has ever been for the last seven years, according to a new survey, released last week.

The new survey, from Zoopla, has shown that the average earner in the UK is now more likely to spend a lower percentage of their take home pay on home owner loan repayments than they would have been at any time since 2003.

According to the survey, someone on average UK earning is now able to afford around 58 per cent of all properties on the market at the present time. Back in 2007, when loan rates were higher and property prices were more expensive, only 34 per cent of properties were considered affordable to the average earner.

Houses were at their most affordable in 2002, when 66 per cent were considered affordable, but this figure slowly declined over the course of the next five years, to reach a low point in 2007.

Not surprisingly, the most affordable areas to live are in the North, with 82 per cent of properties in Bradford being affordable for the loan repayments for average earners. The least affordable area to buy a property is the South, with only 32 per cent of properties in London being considered affordable.

Back in 2007, an average earner using one third of their monthly income to fund their loan, could afford a property valued at £118,934. Today this figure has increased to £188,423.

Nicholas Leeming of Zoopla said “We are at levels of affordability not seen in the UK housing market for almost seven years which makes it a great time to buy, especially if current low interest rates can be locked in by the borrower.”

A large percentage of individuals in the 35 to 44 age group in the UK are living on a tight financial line with their home owner loan, personal loans and other debts, according to a new survey published this week.

The research, which was commissioned by the credit rating agency, Callcredit information group, has found that the 35 to 44 age group seem to have been hardest hit by the ongoing effects of the recession, with many of them struggling to balance their income against expenditure on their loan commitments. In fact around 25 per cent of this age group thought that they would probably default on their home owner loan or mortgage if their income fell by just £300 per month.

Furthermore, approximately 13 per cent of 35 to 44 year olds have admitted to deliberately inflating their actual income in order to obtain a larger loan amount, or an increased credit limit on a credit agreement and a further ten per cent of this age group has also taken out a loan at some point in the past in the knowledge that they might not be able to keep up with the monthly loan repayments.

There is a similar story with credit card repayments, as the number of people who had previously paid off their balances in full each month has also fallen. Once again the percentage in the 35 to 44 age range is much higher than in other groups.

Graham Lund of Callcredit said “These statistics are extremely alarming. A significant proportion of people aged 35 to 44, many of whom have families to support, are living on a financial precipice, where just one negative event, such as a reduction in paid overtime or an unexpected expense could have disastrous financial consequences.” 

Following a year of particularly cautious lending from banks and building societies with regard to maximum loan to value ratios, the number of available home owner loan products which only require a relatively small deposit has increased once again during the month of February.

The news comes from new research conducted by Moneyfacts.co.uk, who have seen a significant increase in the number of loan products offering higher loan to value ratios throughout February and even into the first week of this month.

In the space of just the last week, there have been new loan products from seven different lenders which offer up to between 80 and 85 per cent loan to value and although in recent months, these higher loan to value products have been far more expensive than those requiring a large deposit, the interest rates charged on these new loan deals are also starting to become cheaper.

This move shows a growing level of confidence in the housing and home owner loan markets, as banks and building societies start to relax their lending criteria, whilst still maintaining a responsible attitude towards offering loans to individuals.

Although the majority of high loan to value products are aimed at first time buyers, it is now even possible to obtain a loan of 90 per cent loan to value for someone moving house, which was unheard of just a few months ago.

Darren Cook of Moneyfacts.co.uk said “There are a growing number of mortgage providers which are becoming a little more accommodating with their credit criteria and this bodes well for consumers who will benefit from a growing competitive mortgage market. It is pleasing to see that the average mortgage rate is falling at the same time as deposit requirements are getting smaller, but at levels that are still responsible.”