When finances are shaky and households are slipping further in to debt things can quickly enter a downward spiral. In the worst case scenarios, this decent in to debt can lead to bankruptcy and even homelessness. It is therefore no wonder that many people are turning to payday loans to survive.

According to the latest survey from shelter, a housing and homelessness charity, up to 7 million UK households relied on some form of credit to pay their mortgage or rent last year.

Surprisingly, more than 1 in 7 of those interviewed for the survey admitted that they had used credit at least once to meet their monthly mortgage payments or rent in 2011. With around 48 million adults in the UK this means that at least 7 million were forced to borrow money merely to keep a roof over their heads!

Around 1 in 8 people have resorted to borrowing money from a payday lender since the credit crunch in 2007, according to an online survey.

In addition, according to a group of insolvency experts, millions of Britain’s are likely to take out a loan that has a high interest rate attached to it over the next 6 months.

Figures from the insolvency experts also show that of those people they surveyed, 45% of them struggled to make their finances last until their next pay day.

However, consumer finance association member, John Lamidey, who works with payday loan businesses, disputes all of these figures.

These startling survey results come in the wake of news that more than a million UK home owners will see the cost of their mortgage payments rise in the very near future if they have not already. Therefore the fear by many is that as household budgets are stretched even further still by rising mortgage costs; more people than ever will seek out payday lenders to cope with the increased cost of living.

Payday loans are short term, small, unsecured loans that are designed to help people stretch out their finances until they reach their next pay day. These particular loans can in most case often be cheaper than an overdraft or credit card penalty, providing it is paid back promptly.

But these financial ‘saviours’ are loaded with a staggeringly high interest rate, therefore if borrowers are unable to pay off the loan on the next pay day the are then ‘hammered’ with huge interest payments.

One of the biggest loan companies, Wonga, has an annual percentage rate (APR) of 4,214%. In comparison, regular banks and building societies charge up to an average 8% APR.

Although this may seem like daylight robbery, these companies work within the law.

Therefore while it is vital to keep a roof over your head, expensive borrowing like this can easily become unsustainable and will then eventually make the sit

Danny Gabay, a director of Fathom Financial Consulting and a former bank official said the “trebling in house prices and surge in household debt from 90% to 162% of household income between 1997 and 2007 provided clear evidence of a bubble”.

Therefore in the credit crunch that followed many blamed banks and building societies especially the sub prime mortgage lenders and the customers who bought the products.

Some financial experts suggest that basically “our banking and financial system over extended itself”.

It seems then that greed at all levels had a huge hand in the UK’s financial ruin. Lenders were willing to accept mortgage applications from very risky borrowers and seemed completely disinterested in considering the risk as long as the short term return was strong.

Irresponsible governments and politicians who allowed the financial system to explode by permitting the build up of ludicrous amounts of debt are also in part to blame.

Sir Mervyn King, governor of the Bank of England recently claimed in BBC radio lecture that the bank “did preach about the risks of a financial crisis”.

However, a top economist and former bank member took issue with the claim that the bank had warned about the crisis saying “the notion that they were aware of this is laughable”.

The governor of the Bank of England underlined the scale of the financial crisis by claiming that ‘almost all of Britain’s banks would have failed had not the taxpayer support been extended’ to the entire system at the end of 2008 and not just the Royal bank of Scotland and Lloyds banking group, the 2 state backed lenders.

Many experts have blamed the banks for the recession and they have stressed that an overhaul of the financial system, including the separation of retail banking from ‘risky investment banking’ was essential to make the economy safer on a whole.

There no seems a great demand from the Bank of England to reform the banking system in light of the recession especially to ‘spare our grandchildren from a similar fate’.

Many people feel strongly that bankers in general “need to become better citizens”.

Extensive reform is already under way, as well as moving regulation back to the bank and ring fencing retail banking, the bank will have new powers from next year to ‘prevent a hangover by taking away the punchbowl just as the party in the financial system is getting going’.

The Bank of England have warned that some of the new powers they will have, such as possible loan to value (LTV) caps on mortgages, will not make them popular among bankers, politicians and even at times the general public.

Even though the bank is now taking on considerable new powers there is still not firm and agreed conclusions about the mistakes that were made.

However, getting a mortgage on a newly completed property it seems is far harder than on an existing, previously owned home, even though a new home should be maintenance free, while the existing home might be riddled with damp and full of hidden defects.

However, new build properties were widely seen to be in the forefront of the general housing market crash.

Over 2 years ago some lenders began to restrict what they would lend to borrowers who were buying a new build property. These lenders said at the time that they felt they could not rely on valuations of new build properties, especially on new build flats. Lenders were worried about the resale value of new homes if buyers defaulted on the loans early.

Most lenders down valued newly built properties far more than they did established homes at the application stage and a low valuation meant they did not qualify for a big enough mortgage to complete the purchase.

This was the right move in most cases at the time as new build flats have fallen in value faster than any other part of the property market. According to smartnewhomes.co.uk, new build flats have dropped by 17% in value in the last year.

So called ‘gifted deposits’ where developers agreed to boost the buyers savings with a lump sum tended to look good but lenders view them as evidence that the property was overpriced in the first place.

Many lenders also tightened their lending criteria on build properties and increases the size of deposit require from borrowers.

Halifax, for example only required a 10% deposit for most first time buyers buying an older property but wanted 20% if they were buying a newly build property. Nationwide also required a 25% deposit on newly built properties. Both lenders required a much bigger deposit from buy to let investors thinking of buying a new build, a huge 35%.

However, recently it seems that lenders are gearing up to relax their criteria on new build properties, according to mortgage industry insiders.

Richard Sexton, a director at Esurv, the largest provider of valuation services in the UK stated “a couple of years ago new builds were repossessed more than average, now it’s less than average. The market is on a far more even footing”.

Andrew Montlake, a director at mortgage broker Coreco, added “undoubtedly, lenders are looking a bit more kindly on new build. The dire predictions in 2008 and 2009 have not come to pass and the market seems relatively stable”.

HSBC said recently it believed the new build market had stabilised and it was now safe to raise its loan to value (LTV) ratio. The bank will be increasing the loan to value (LTV) ratio on new build property from 75% to 85%.

Crucially, lenders can raise or lower standard variable rates (SVR) as they like, independent of changes to the Bank of England’s base rate.

It now seems that the big mortgage squeeze has begun and borrowers should not expect any more favours from the banking industry, despite it having brought the economy to its knees.

So the Bank of England continues to hold the base rate at its historically low level because they obviously realise the ramifications of raising the cost of mortgages but now several lenders decided to increase the interest rates on their standard variable rate (SVR) deals. These increases will take effect from the 1^st of May.

The most recent lender to announce this was the Co-operative bank, following similar moves by the Halifax, the Bank of Ireland, the Clydesdale and Yorkshire bank, all of whom cited the rising cost of financing these loans by borrowing in the wholesale markets as their reason.

This squeeze is basically about 2 things: firstly lenders are trying to shore up defences against the ongoing euro zone crisis and its fallout, secondly this is all part of the process of rebuilding their finances after the credit crunch driven financial crisis.

Unfortunately both of these things will continue for years to come and in the end it will once again be the borrowers who foot the bill for repairing the damage done by banks and building societies own mis-management during the ‘easy credit years’.

According to new research from Which? Over a million consumers will face a £300 million hike in mortgage repayments over the next year.

The rise in payments will add an extra drag on to consumer’s finances and confidence at the same time as Britain has found itself dragged in to recession again.

James Moss, managing director of Curzon Investment Property, said “this is a kick in the groin for home owners especially at a time of rising energy prices and food bills, this will hit people hard”.

Which?, the consumer group have blamed the standard variable rate (SVR) rises on a ‘lack of competition in the mortgage market’ and also the failure of the government to take action to promote competition.

However the Financial Service Authority (FSA) has said it has seen ‘little evidence of this so far’.

Some experts believe that market pressures will keep rates in check as lenders who raise their rate too aggressively risk losing their most creditworthy customers.

As a double whammy to home owners, banks and building societies have also begun to raise their rates on the deals that those on standard variable rates (SVR) could re-mortgage to ahead of the introduction of stricter mortgage rules from next year.

In conclusion the big question for borrowers sat on standard variable rates (SVR) is which lender is next? The short answer is that it could be almost any bank or building society.

Housing minister, Grant Shapps said of the scheme “thanks to the agreements we are striking with lenders and builders across the industry, those aspiring to get on to the property ladder are now able to do so”.

The major lenders already signed up to the scheme are: Natwest, Woolwich, Barclays and Nationwide.

Although, just weeks after the scheme came under fire for its failure to attract enough lenders a fourth bank, the Halifax, has signed up to the governments new buy mortgage indemnity scheme.

Stephen Noakes, mortgage director at Halifax, stated “as the leading lender in the new build market, we are proud to support the new buy scheme”.

The building society has launched the scheme with a 2 year fixed deal at 5.99% and another at 6.39%, which is fee free.

However, just 43 days after the launch of the scheme banks have quietly raised their rates for the scheme by up to 22%.

Natwest offered the best initial rate when the scheme was first launched at 4.29% for a 2 year fixed rate and 4.99% for a 5 year fixed rate. Its new 2 year deal is 4.79% and the 5 year deal 5.49%.

Woolwich has raised its rates from 4.99% fixed for 2 years to 6.09% on a 3 year fix. Nationwide has also pushed up rates on its 3 year fixed deals by 0.2% and 0.1% on its 5 year fixed deals.

Experts say that they could understand the rates being so high if the lenders were taking on all the risks, but that is not the case.

Taylor Wimpey became the latest house builder to raise concerns about the government’s flagship plan to stimulate the property market. Pete Redfern, Taylor wimpey chief executive, said “there has been strong interest from customers in the scheme but its success will depend on lenders providing competitively priced mortgage products”.

Other house builders in the scheme stated that “buyers are being put off by the disappointing lending rates on offer”.

Most builders within the scheme have argued that it is unlikely to succeed because banks are charging ‘excessive’ rates of around 6%, which are far higher than other mortgage deals on the market at the current time.

Dominik Lipnicki, of Your Mortgage Decisions, said of the recent rate rises “it is taking advantage of people who have small deposits. It means fewer people will be able to afford to rake out the mortgage, when the point of the scheme was to ensure more could”.

The chief executive of house builder Permission, stated “there is nothing wrong with the concept of new buy, but to make it work we need a lower rate or people will be priced out”.

A spokeswoman for the Natwest said that the initial rates had ‘always’ been advertised as promotional.

The Nationwide house price index found that the price of a typical home fell by 0.2%, taking the average UK house price to around £164,134. On an annual basis, prices are now below their level a year ago.

Nationwide chief economist, Robert Gardner, said “the drop in April is the fourth time in 5 months that prices have declined”.

Howard Archer, chief economist at HIS Global Insight also added that “house prices in April were 3.5% below their June 2010 peak and 11.8% below their October 2007 record high”.

Some experts believe that the ending of the stamp duty holiday for first time buyers in late March appear to have boosted home sales early on in the year, but it has also probably contributed to the volatility in house prices in the last few months.

The Bank of England figures showed that the number of mortgage approvals for house purchases rose by 1.5% in March but they still remained firmly below the previous 6 month average.

So it does seem that borrowers are facing tougher hurdles to getting a mortgage now and availability is expected to decrease in the coming months as lenders further tighten their borrowing criteria.

Martin Ellis, Halifax’s housing economist, suggested that “despite the slight improvement in the underlying trend in recent months house prices continue to lack any real direction, with the current UK average price little different to where it was at the end of 2011”.

In light of the housing market woes the Halifax began measuring consumer confidence around a year ago and the tracker recently reported that 4 in 10 people felt that house prices will rise in the coming year, which is double the amount who believes prices will fall. The Halifax states that this is the most positive reading since they started tracking.

However, professional economists continue to believe direction in house prices is flat or downwards and believe that house prices will drift lower over the coming months. This belief is reinforced by the Nationwide reporting that house prices fell by 0.2%.

Housing market activity is very low at the moment and the economic fundamentals currently look worrying overall for the market, with unemployment high and likely to rise further, earnings growth muted and the outlook uncertain.

Nicholas Ayres, from buying agents Home Fusion said that “house prices are being dragged down by the full weight of consumer caution and economic uncertainty and the nationwide are or thereabouts when they say prices will stagnate over the course of the next year” he also added “my feeling is that this is the most positive scenario”.

The challenging economic backdrop does suggest that a significant acceleration in prices or activity is unlikely in the near term and house prices are expected to fall by around 3% by the end of 2012.

At the start of April, the financial information service, moneyfacts.co.uk, noted that the past 2 months had definitely seen a sudden drop in the total number of mortgage deals available to all borrowers.

The mortgage market was starting to look healthy at the beginning of 2012, with a peak of 2,757 deals on offer in February. However, March saw just 2,288 mortgage deals offered and this number continues to fall.

Ray Boulger, of mortgage broker John Charcol, suggested that the increase in the number of mortgage deals late last year may have been due to lenders looking for more profitable borrowers.

Although some experts believe that the main reason fro the fluctuation in the number of products on offer may be due to the stamp duty holiday coming to an end in March this year and also the introduction of the governments ‘new buy’ scheme.

Figures from moneyfacts.co.uk show that nearly two thirds of all deals on offer still require a deposit from the borrower of at least 20% or more of the property’s value.

It therefore seems that a loan to value (LTV) of more than 80% is now becoming a thing of the past and even borrowers with healthy annual incomes and good credit ratings are finding that the range of loan to value (LTV) products is constantly decreasing.

According to other data there are 2,557 mortgage types on offer, but 64% of these require at least a 20% deposit and only 2% require a deposit of 5% or less.

Michelle Slade, of moneyfacts.co.uk, stated “there are deals for borrowers with a 5% deposit but the majority now require a guarantor to qualify or are from lenders which offer restricted lending”.

Recent research from the Bank of England has also shown that re-mortgage deals have also declined in demand for the second month in a row.

It seems in general that lenders have become even more cautious in their outlook on future borrowing and have pulled most of their cheapest deals.

In March, the Bank of England reported that banks and other lenders were preparing to further restrict their mortgage lending in the coming months.

Among those currently making changes to arts of their mortgage ranges are: Abbey, HSBC, Halifax, Lloyds TSB, Santander, Britannia and Cheltenham & Gloucester.

Many of these lenders have begun to pull back on lending, making restrictions tighter and thus making higher loan to value (LTV) mortgages much tougher to obtain.

The drop in mortgage deals seems to indicate that borrowers are less likely to apply for a mortgage at the current time. This may be due to a difficult mortgage market with larger costs involved in taking out a mortgage.

While these changes are taking place, the mortgage market in the UK looks set to stagnate over the coming year, which in turn will

The government’s flagship ‘new buy’ scheme which is designed to revitalise the housing market and kick start the economy, may be in disarray as mortgage lenders fail to support it.

The scheme, which was launched in March, was meant to be rolled out rapidly. The government launched the scheme in a blaze of publicity. However, it seems that mortgage lenders have been slow to embrace the scheme.

Mortgage lenders who initially said they would offer the scheme, such as Nationwide, Natwest and Woolwich, appear to be unable to cope with the level of enquires they have received in the first few days and staff training has also been inadequate.

Some lenders also now feel that the whole scheme seems far too complicated to gain traction and they have also realised that 95% loans also means negative equity further down the line, which is not good even if the government underwrites part of the risk.

Lenders, it also seems are concerned that they will not benefit as much as builders would within this scheme and therefore they have not been very forthcoming in their support for the scheme.

The Home Builders Federation (HBF) have voiced concerns that the scheme has not been embraced by mortgage lenders as it should have been and that it is “not all what was envisaged”.

The normal lenders have not shown much interest in the scheme and this was not the intention.

The executive chairman of the House Builders Federation (HBF), Stewart Baseley, has therefore written to builders expressing his frustrations, he told builders “I want to assure you that the House Builders Federation has made both the Council of Mortgage Lenders and the government fully aware of these problems”.

Due to the concerns from house builders the treasury has now been forced to urge UK lenders to back the ‘new buy’ scheme, especially after a “far from satisfactory launch”.

The treasury office have said they will endeavour to come in t direct contact with the lenders at their senior management level to work out the intentions of each lender and to also put pressure upon them to take up the scheme as one of their priorities.

A spokesman for the department of Communities and local government added “we are all working together to quickly expand the ‘new buy’ scheme.

A spokesperson for the Council of Mortgage Lenders (CML) said on behalf of lenders that “the challenges involved in implementing the scheme to very demanding timetable have been considerable”.

The 3 current lenders in the scheme are clearly waiting for Lloyds to enter the field given its sizeable market share in the new build mortgage market, some experts feel. Lloyds and Santander are both due to launch the scheme within the next 2 months.

However, even though some big lenders have got on board with the scheme some financial experts have urged home buyers to treat the scheme with caution before signing up.

Bob Pannell, of the committee of mortgage lenders, stated “property sales remain fundamentally weak, but have shown strong year on year increases since the closing months of 2009”.

The Building Society Association (BSA) recently released figures that showed new mortgage approvals were up 31% on February 2011 figures and also up by 29% on January 2012, with £2.2 billion worth of mortgage approvals in February 2012.

These new mortgage approvals, the future pipeline of completions, have indicated an increased level of consumer activity with mutals.

Adrian Coles, director general of the Building Society Association (BSA), said “gross lending and new mortgage approvals by mutals continued to rise year on year in February, despite growth across the market as a whole remaining relatively flat”.

The Council of Mortgage Lenders (CML) estimated that gross lending for February 2012 was £10.7 billion, which is up slightly on January’s figure of £10.65 billion.

However, the Bank of England’s figures showed that there was a sharp dip in approvals even before the ending of the stamp duty concession for first time buyers.

In the current climate, mortgage lenders still remain really ‘picky’ on who to accept and figures show that there were just under 49,000 loans approved elsewhere in the market in February 2012, a big drop from the 58,000 approved in January.

The slump in mortgage approvals in February confirms what most experts believed, that the demand in loans was artificially boosted over the past 6 or 7 months by the stamp duty holiday.

Howard Archer, chief UK and European economists for IHS global insight, agrees and stated “mortgage approvals were clearly lifted towards the end of 2011 and early on in 2012 by first time buyers looking to complete before the concession ended in March”.

The latest approval figures also come on the back of rate hikes by several banks. Clydesdale and Yorkshire bank followed by the Halifax and Royal Bank of Scotland (RBS) all recently announced plans to raise their standard variable rates (SVR).

A report from the Bank of England has also suggested that many lenders expect mortgage availability to decline slightly over the coming months and other data also suggests that confidence in the housing market remains fragile.

Therefore borrowers are likely to have an even tougher time trying to secure a mortgage as employment conditions deteriorate and lenders tighten their lending criteria.

However, on a slightly brighter note the government has now launched their ‘new buy’ initiative. Many experts believe that the launch of this initiative will be an important addition to lenders ‘toolkit’ in addressing the various needs of would be borrowers.

The scheme, some believe, has the potential to offset the dip in first time buyer activity that the end of the stamp duty concession has produced.

With this particular product borrowers do not repay any of the capital they borrow during the term of the loan. Instead, the policy should grow to then produce a lump sum large enough to repay the mortgage in full at the end of the pre-agreed period, which was usually 25 years.

There are around 10.2 million endowment backed mortgages still in operation and these cover around 7.5 million properties. The reason so many people bought these policies was that home loan firms and estate agents earned large commissions for selling them.

In the early eighties, when endowment policies first became popular, inflation was roaring and interest rates were high. These policies were however sold on optimistic promises, based on a booming stock market.

There has never been any guarantee that the endowment policy would pay off the mortgage and shortfalls have become a fact of life now for an increasing number of policy holders.

This is particularly apparent in the current climate where inflation and interest rates have fallen dramatically, hitting investment growth hard.

New research has shown that around 70,000 home owners can this year alone expect a shortfall on their endowment policies.

However the Association of British Insurers (ABI) recent research suggests that the figure of policies that are in trouble is more likely to be 6.2 million.

The Financial Service Authority (FSA) has demanded that all firms write to their policy holders each year to let them know exactly how their policies are progressing.

Therefore millions of people are being sent letters warning them of likely shortfalls. Lending firms say they are sending a second round of letters, although the first were issued in 2000 to 2001.

Payouts on endowment policies have been falling for years and now it seems a third of a million families may be forced to sell their homes this year as their policies fail to deliver.

Data shows that in just 5 years payouts on policies have fallen by as much as 44%. Therefore many home owners are now seeing their endowments fall by up to £100,000 short of what they were originally promised.

Patrick Connolly, from independent advisers AWD Chase De Vere, said “payouts have fallen over the past few years and this is likely to continue”.

Aviva, one of Britain’s biggest insurers, has 71,000 endowments policies due to mature this year and they estimate some 70,290 will fail to pay out enough to cover the policy holder’s home loan.

A spokesman for Aviva said “we have been through poor investment periods in the past 5 years and this is reflected in the payouts”.

Standard Life also has 106,000 endowments maturing this year and of these nearly 104,000 or 98% will show a shortfall.

Two years ago Norwich Union promised to make up any mortgage shortfalls in their policies, but that now looks unlikely as the company’s investment record has been so poor any money they had allocated to do this will now not be sufficient.