However, the latest figures from the financial regulator, the Financial Services Authority (FSA) have shown that the level and number of outstanding loan arrears cases on home owner loans and mortgages in the UK has actually fallen.

The figures have shown that there were a total of 301,800 individual home owner loans and mortgages which had loan arrears between October and December last year, which was down from 303,200 during the previous three month period and 313,200 loan arrears cases for the same period twelve months earlier.

The number of new loan arrears cases also fell by comparison with the same time twelve months earlier, to 35,000 new loan arrears cases, a reduction of three per cent, although there was an increase of 1 per cent on the previous quarter.

As a result of the reduced loan arrears cases, the number of properties being repossessed through loan arrears also fell during the last three months of the year to just 7836 cases, a decrease of 8 per cent on the previous year. There were a total of 34,583 properties which were repossessed by the lender due to loan arrears and defaults over the course of the whole of last year.

Although some specialist lenders are now offering bad credit loans to individuals with an impaired credit history, the figures show that bad credit loans only accounted for less than 0.3 per cent of the overall home owner loan market or the whole of last year.

Interest rates on personal loans in the unsecured loans market have dropped significantly over the course of the past couple of years, with some of the most competitive loan deals being in the £7,500 to £15,000 loan amount bracket, although there have been price reductions across the board.

New research from Moneyfacts.co.uk has found that the average interest rate on an unsecured loan of £5,000 over a term of three years has dropped from 12.5 per cent back in March 2011, to just 11.8 per cent today.

Twelve months ago, the best deal on offer for a cheap loan of £5,000 over three years was a rate of 7.9 per cent and the best loan deal over a two year term stood at a rate of 8.4 per cent. However, this has now fallen to just 6.8 per cent for the best current loan deal over this term.

The Moneyfacts survey also highlighted the best loan deals which are currently available on the market for an unsecured loan of £5,000. The best loan deal was from Hitachi Capital, which advertises a starting rate of just 6.8 per cent for a personal loan. This is closely followed by Sainsbury’s Bank, M&S Bank, Santander and the Clydesdale Bank.

Of course, these advertised loan rates are only available to those borrowers with a perfect credit rating and the actual interest rate charged on a personal loan will depend largely on the personal circumstances and credit rating of the individual who applies for the loan.

The latest figures from the Finance and Leasing Association (FLA) have shown that the level of unsecured loans and consumer credit increased by around 1 per cent throughout the month of January this year, compared with the same period twelve months ago.

The highest growth area within the market was is car loans and new car finance deals, followed by second charge mortgages or secured loans and store instalment credit and loans.

The secured loans market saw its highest level of growth since October last year, with the total number of new secured loans growing by 14 per cent in number and around 30 per cent by outstanding loan amount, compared with loan figured for the same period twelve months ago.

The growth in the UK loans market and the support it is providing for the UK economy as a whole, places even more pressure on the new financial regulator, when it is designing the new legislation which will come into force for the whole of the UK loans market next year.

Stephen Sklaroff from the FLA commented on the timetable for the proposed regulation, he said “The loans market contributes £260 billion to the UK economy annually. Millions of people rely on loans and finance for everything from the car in their driveway to the sofa they sit on each evening. Tens of thousands of high street stores, motor dealers and lenders which provide the loans and credit, need a realistic timeframe in which to prepare for the new regulatory regime.”

Following lengthy investigations and reports, the Office of Fair Trading (OFT) has finally been given more powers to deal with loan companies who may be causing harm to consumers and as a result, the regulator has issued an ultimatum to pay day loan firms across the UK.

The OFT has given the top 50 pay day loan firms, which account for around 90 per cent of the pay day loan market, a deadline of twelve weeks to change their business practices, or face losing their Consumer Credit Licences and being shut down.

It has also been proposed that the pay day loan market is referred to the Competition Commission after the OFT found problems in how loan companies competed against each other.

It was found that firms are competing on the basis of speed of acceptance for a new pay day loan, rather than on the basis of the cost of a loan and that there is too much reliance on rolling over existing pay day loans into new loans, thereby increasing the cost even further.

Other problems include: loan companies failing to assess affordability before offering a new loan, failure to explain how payments are collected, using aggressive loan debt collection techniques and not treating loan customers in financial difficulty with forbearance.

The OFT has stated that these problems “go beyond non compliance with the law and regulations and that a full investigation by the Competition Commission is needed to identify and, if appropriate, impose lasting solutions to make this market serve its customers better.”

The Equity Release Council (ERC), the trade body for the equity release loan industry, has predicted that this year will see even more growth in the market, largely due to new and innovative equity release loan products, as well as increased consumer awareness of equity release loans.

Around 45 per cent of ERC members believe that new loan products will make equity release more attractive to home owners throughout this year and 38 per cent think that increased consumer awareness and understanding of equity release loan products will encourage more people to take out such a loan.

This is the first such survey conducted by the Equity Release Council since it was launched last summer. Previously it was known as SHIP (Safe Home Income Plans), but since that time, the membership has been expanded to include Solicitors, Financial Advisers, charity organisations and surveyors, as well as loan providers.

Nigel Waterson of the Equity Release Council said “As more people approach their later years with a question mark hanging over their finances, equity release loans offer many a common sense and practical alternative to selling their homes or falling back on state support.”

“The safeguards supported by the Council’s code of conduct and the work of our standards board are designed to protect consumers’ best interests and mean that over 55’s in 2013 can engage advisers with confidence to discuss how equity release loans can benefit their retirement.”

The calls have come from the consumer group Which?, who say that the pay day loan and door step lender sector of the loans market in the UK has grown at an alarming rate over the course of the past couple of years, largely due to the lack of availability of mainstream loan products , such as bank loans and other cheap loan products.

Pay day loans and other similar short term loan products, such as door step loans, have far less regulation than a traditional bank loan and carry out fewer checks on borrowers to assess affordability of the loan, yet charges are much higher than any type of mainstream loan, with massive penalty charges for late or missed loan repayments or arrears.

A recent survey conducted by Which? raised additional concerns due to the fact that around 24 per cent of people who took out a pay day loan, used the money to pay for repayments on other personal loans or even their home owner loan or mortgage.

A spokesman for Which? said “For an increasing number of people, using credit to pay for essentials has become the norm. This has led to people being forced into a vicious cycle, taking out further expensive loans and credit, to pay off their existing loan debts. The new regulator, the Financial Conduct Authority due to come into being later this year, must be strong, proactive and willing to take action, especially against loan companies who are exploiting consumers.”

The problem seems to be most marked amongst retired people over the age of 65, whose loans are fast approaching the time when they should be paid off, yet many retirees are still making monthly payments on their home owner loan, at a time when they should be free of any loan debts.

A survey of retired people by the equity release loan provider, More 2 Life, has revealed the scale of the interest only loan problem amongst the over 65’s, with those individuals who still have an outstanding loan balance, having an average loan debt of around £43,000.

More 2 Life is trying to convince the Financial Services Authority that there needs to be a warning system in place for those with interest only loans who find themselves in this position, similar to the system used with endowment policies alongside home owner loans, with red, amber and green warnings.

This would draw attention to the problem and allow borrowers to do something about it before their loan reaches the eventual maturity date.

Jon King of More 2 Life said “The interest only loan time bomb is purely and simply about the looming repayment date for mortgages and loans. Customers can pay the interest but they need to find substantial sums to clear the capital borrowed.”

“The concern is that people hope for the best which is why regular warning letters from lenders will help concentrate customer’s minds. Lenders themselves already acknowledge it is a major issue and many are concerned.”

Not surprisingly, the number of people getting themselves into unmanageable debt problems through pay day loans has seen a huge increase as a result of the increased number of loan applications, with one loan debt help charity seeing an increase of around 94 per cent in the number of calls they receive regarding pay day loan debts.

National Debtline says it took more than 20,000 individual phone calls from consumers who were struggling with their pay day loans over the course of last year. Tis is almost double the number from the previous year, when they received 10,301 calls relating to pay day loans and only 465 separate calls back in 2007.

The loan debt charity has said that this rate of phone calls regarding pay day loan debts works out at around one phone call every seven minutes, when the phone lines are open.

It is not only the high interest rates on pay day loans which cause people problems, but also the additional charges and late payment penalties which are often added if the loan is not repaid on time and in some cases can work out to be more than the original loan amount itself.

Joana Elson of the Money Advice Trust said “Pay day loans have come from nowhere to be one of the most common debt problems people face. The rapid emergence of pay day loans has caught regulators a little off guard. We have waited some time for real action to be taken to help prevent people falling into a serious debt spiral with these loans.”

However, this situation changed rapidly following the credit crunch. Banks and building societies became reluctant to offer loans even to people with a perfect credit history, let alone to someone who may have a County Court Judgement (CCJ) or have missed a couple of repayments on an existing personal loan.

Although the situation has remained desperate for many potential borrowers with some form of adverse credit who may be looking for a suitable bad credit loan, over the course of recent months the loans market has started to relax its lending criteria slightly, particularly when it comes to things like loan to value on a secured loan and some small amount of bad credit in the past.

Shawbrook Bank, who are fairly new to the secured loans market, have just announced however, that they are to launch a new secured loan product in the bad credit loan sector, which will accept borrowers who may even have an Individual Voluntary Arrangement (IVA) on their existing loans and personal debts.

Loan rates on the new product will start from 11.9 per cent, depending on the loan amount and nature of the adverse credit and will allow a loan to value of up to 80 per cent.

Maeve Ward, of Shawbrook bank said “This market is underserviced and other lenders tend to shy away from offering a competitive loan solution for clients. At Shawbrook, we take the time to understand and assess the needs of clients as well as identify gaps in the market.”

Whilst this seems to have been successful within the banking sector of the UK loans market, with a wider range of cheap loan deals now available at higher loan to value ratios for secured loans, the scheme also seems to have had a knock on effect in other areas of the loans market, according to one peer to peer loan company.

The peer to peer loan company, RateSetter, has announced that it arranged a record number of loans through its organisation last month and has said that it believes this is due to the effects of the Funding for Lending scheme.

RateSetter was launched back in October 2010 and in January this year it completed £6.8 million worth of new loans, which shows a 100 per cent increase on any previous month since the company was formed.

It seems that this has been a trend throughout the peer to peer loan market, with most peer to peer lenders seeing an increase in loan numbers during January. Overall peer to peer loan companies arranged around £20 million of new peer to peer loans in the UK.

Rhydian Lewis of RateSetter said “Funding for Lending seems to be achieving what the government wanted in terms of getting funds flowing into home owner loans and mortgages, which is great news for borrowers but, on the other side, it has meant savings rates have plummeted as banks replace their retail funding with Government funding. The reduction in savings rates has led people to look at peer to peer lending.”