Since the recent election and emergency budget, the new coalition government has been warning consumers about the prospect of tough times ahead, describing the situation as a new age of austerity and that people should take steps to reduce their spending by budgeting more carefully.

New research from the Spanish bank Santander, has found that around 80 per cent of people in the UK are already taking on board the message and are making efforts to reduce their monthly outgoings by making slight changes in their lifestyle.

The research found that more than half of consumers are now shopping for their groceries more carefully, either by reducing what they buy, or by switching to a cheaper supermarket in order to save money.

Many individuals are also cutting down on luxury items, such as eating out on a regular basis and keeping their old car for longer, rather than taking out a personal loan in order to but a new one.

Other cost cutting measures include shopping around for cheaper utilities, such as gas and electric, as well as shopping around for a cheap loan in order to repay more expensive unsecured loans and credit cards.

Many individuals with existing loans and credit cards are making extra effort to repay their debts earlier, by making overpayments whilst interest rates are relatively cheap, in order to free up extra disposable income in the future.

Helen Bierton of Santander said “The coalition government has warned of the impending “age of austerity” for a while now, but most of the British population are already taking measures to cut down on their daily expenditure.”

“Many frugal Brits are cutting out luxuries, such as buying their daily coffee form the coffee shop, or using the car wash, but the best way of getting more for your money is by shopping around and moving to providers of goods and services that offer better value.”

It is now sixteen months ago since the Bank of England reduced the base rate of interest on loans and savings to its lowest ever rate in history, of just 0.5 per cent. At the time, many people thought that this would be a short term benefit on their home owner loan, but more than a year later and there is still no sign of an interest rate rise.

Over the course of the past twelve months or so, there has been growing speculation amongst both industry experts and those people with loans alike, as to when interest rates are likely to increase, pushing up the cost of a variable rate home owner loan or mortgage.

But it looks as though cheap loan rates could be here to stay for another four years, according to the latest predictions from the Ernst & Young ITEM Club.

Ernst & Young believe that the announcements made in the last budget to cut the economic deficit, will mean that economic growth will remain subdued in the UK for some time to come yet and in order to stop inflation falling to below 1 per cent, interest rates will have to remain at their current rate of 0.5 per cent until the end of 2013 at the earliest.

This news is likely to encourage those people looking for a new home owner loan or mortgage to choose a tracker or variable rate loan, rather than a fixed rate loan deal, as it now looks increasingly likely that the majority of fixed rate loan deals will have already ended by the time interest rates finally do go up.

Although cheap loan rates are now seeming to be normal, rates will go up at some point in the future and borrowers should not take cheap loan repayments for granted, but use this time to overpay on their loan and reduce their outstanding balance while they can.

Payment Protection Insurance (PPI) policies have been sold by financial organisations for many years in connection with an application for a new personal loan, a credit card, or a home owner loan, as a matter of course.

But, as we have reported previously on several occasions, an increasing number of customer complaints regarding the mis selling of PPI policies alongside a personal loan, has led to an investigation by the Office of Faire Trading (OFT) and the Competition Commission (CC).

The result of this investigation is that there has now been a complete ban on the sale of a PPI product at the same time as the sale of a personal loan, or other credit agreement, with a seven day cooling off period before the customer can be approached for such products.

The intention is to allow consumers the chance to think about the cover they need to protect their loans and also have the opportunity to shop around for the most suitable product to meet their needs.

Although PPI sales continue, many experts in the loan and financial industry are of the opinion that it is a relatively poor product and there are far better products to protect a new personal loan available in the market place.

As if to verify this concern, Lloyds Banking Group has become the first high street bank in the UK to announce that it is to stop selling any type of PPI policy to its personal loan, credit card and home owner loan customers.

Peter Vicary-Smith of Which? commented on the decision, he said “Lloyds decision to stop selling PPI is a huge victory for consumers. Hopefully, other banks will follow suit and we’ll finally see the back of this poor protection product.”

“Now is the beginning of the end for PPI, banks need to get back to the drawing board and offer their customers insurance products that actually protect them when they need it.”

Recent proposals from the Financial Services Authority (FSA) for people applying for a new loan and a new home owner loan in particular, will mean that lenders will have to carry out extra checks on potential loan customers before they are able to be accepted for a new loan.

These checks will include a detailed affordability calculator and a test of the borrower’s ability and intention to repay their loan. They will form part of the loan application process for lenders to ensure that they are lending responsibly and hopefully reduce the level of loan arrears and defaults.

In order to assist lenders in this process, Payplan, the consumer debt solutions company, has introduced a new package which allows lenders to outsource this onerous task of assessing a customer’s ability to repay their loan prior to application.

The system, called Reference Point, is designed to help lenders meet their new obligations under the Mortgage Market Review (MMR) and will  carry out an independent assessment of the potential borrowers personal and financial circumstances, with regard to the loan they are applying for.

The information received will be tested against Payplan’s large existing customer base and their experience in offering debt help and advice to borrowers who have struggled with their loans in the past, which is intended to provide an insight into the likely behaviour of a borrower in relation to managing their new loan.

John Fairhurst of Payplan said “Our experience of dealing with customers who have debt problems over many years has given us a unique perspective of a customer’s ability to handle their income and expenditure. Reference Point can really add a different dimension to the lending decision making process and still be achieved within a timeframe that does not compromise the ability to turn round applications in a timely fashion.”

If a consumer has a complaint regarding any financial product, such as a loan, investment or protection policy, in the first instance, they should consult the company which advised the product.

 If this fails however, the client is able to take their complaint to the Financial Ombudsman Service and then the Financial Services Compensation Scheme, who are able to pay out financial compensation for the consumer, if the original firm is unable to do so.

Over the course of the last financial year (2009/10) the Financial Services Compensation Scheme (FSCS) received a record number of 31,600 claims and consumers were paid out a staggering total of £204 million in compensation, for bad financial advice.

Of all these claims, two thirds of them were related to the sale of either investments, or a Payment Protection Insurance (PPI) policy which had been sold in connection with either a personal loan, credit card, or home owner loan.

As more individuals were sold a PPI policy alongside their loan, in some cases even without their knowledge of having taken out such a plan, the number of complaints also increased.

The FSCS dealt with more than 2,400 individual cases relating to PPI cases sold alongside a loan of some kind over the course of the year and they expect the number to increase significantly once again during the current financial year.

Mark Neale of the FSCS commented on the figures and service levels of the FSCS, he said “The FSCS achieved a huge amount in 2009/10. We completed a large number of claims, resolved outstanding issues from the banking failures and made significant investment in response to the demands for faster payout and our increased responsibilities.”

“The report demonstrates the vital service the FSCS provides to consumers and the benefits it brings to the industry in delivering consumer protection and promoting consumer confidence.”