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By the new year, the credit crunch will be in full swing, and people seeking a personal loan or mortgage are being urged to apply before Christmas. If they wait, they risk losing out entirely. 

Loans are becoming more difficult to secure – one in ten lenders abandoned the market after GE Money, Leeds BS and LV= announced they would no longer be offering unsecured loans. There is no sign of a letup and people are being warned to prepare for increasingly turbulent market conditions. 

Esther James, personal finance analyst for Moneyfacts.co.uk, is advising anyone considering a personal loan to act quickly. 

“With less choice, a more cautious lending strategy and the impending decision on payment protection insurance sure to shake up the market, the 2008 loan market could look very different,” she said. 

Not only is the borrowing process becoming more stringent, but wait times are also increasing. Lenders are making people wait. 

Katie Tucker, technical manager at mortgage broker John Charcol, offers the following explanation: “The credit crunch means that even the balance sheet lenders who have funds available are in no hurry to price themselves into popularity because it could bury them in business and ruin their service levels.” 

At the Woolwich, for example, calling for an update means queuing for an hour, and getting a new application even looked at involves a wait of at least a week. 

Tucker emphasized that it is vital for borrowers to allow extra time for applications.  The temptation to delay until after Christmas could cost remortgage customers an unexpected month on an unfavourable high rate if they revert to their lender’s SVR while they are waiting.

Potentially thousands of credit applications may be rejected by banks during the holiday season.

According to accountants PricewaterhouseCoopers (PwC), repayments are becoming a problem for an increasing number of consumers, leading to profit slumps for many credit card providers. Also contributing to the slump is a rise in competition in the sector. The firm’s Precious Plastics 2008 report claims that £4 billion has already been lost by credit companies as a result.

The figures provided by PwC represent just a small part of the problem. The UK continues to experience worrying debt trends, with the average British adult owing £33,000 in unsecured loans – twice what it was in 2000.

Richard Thompson of PwC warms that the situation is not likely to improve any time soon. “Banks are continuing to take action in response to the rise in consumer debt by tightening their credit acceptance policies. Many consumers will find it increasingly difficult to obtain credit in the run-up to Christmas.”

Credit limits are feeling the pinch as the global financial crisis continues to make demands on banks and lenders.  The Daily Telegraph newspaper reports that borrowing limits are being cut by credit providers, even for those customers who have previously shown good repayment habits.

Credit company Goldfish admits to having cut limits for a “small” number of customers. 

The current crisis was triggered by the collapse of the sub-prime mortgage sector in the US, which saw many homeowners defaulting on their repayments. It was soon revealed that major financial institutions had purchased the debts and would be facing large losses as a result of the market collapse.

Banks responded globally by raising the rates at which they were willing to lend to each other. By now, the situation has filtered down to street level, where the average person is feeling the effects.

Prospects do not look promising for the future and further credit upheaval is expected in stock markets around the world. Expert opinions concur that the consequences of the current crisis will continue for some time. 

At home, London’s FTSE index felt its biggest drop since August following predictions by investment bank Goldman Sachs that rival corporation Citigroup would be facing big losses as a result of the US sub-prime mortgage collapse. Citigroup had been highly exposed to the US sub-prime market – the company saw its shares fall 6% yesterday as a result of the prediction.

Customer confidence has suffered a blow as a result of the US sub-prime mortgage collapse this summer, which triggered a global financial crisis.

According to research done by debt consultancy firm Thomas Charles in conjunction with polling company YouGov, Britons intend to restrict credit card use this holiday season. 

James Falla, Director of Thomas Charles, praised the public for its willingness to plan ahead: “The research that has been done clearly shows that people are thinking about how much they are spending and they are thinking about spending within their budget.”

However, he also expressed some concern as to the average consumer’s ability to rein in overspending during what is usually the busiest shopping period of the year. 

“I think that around this time of year it’s easy to almost make a resolution to do something, but it’s a very difficult time of year to do it - particularly when the natural instinct is to go out and spend more,” he said. 

Further research by the consultancy firm suggests that 15% of Britons own significant debt of over £10,000, with men found to be in higher debt overall than women.

The holiday season will see a financial drought when it comes to credit card usage, a new report predicts.  Both providers and retails should expect a downturn in plastic spending. 

A poll of nearly 2,000 adults by debt consultancy firm Thomas Charles revealed that around 25% of consumers plan to avoid spending on their credit cards entirely this Christmas. 

Another 10% said they intend to refrain from making large purchases on their cards for the next six months. 

A separate result indicated that 15% of those surveyed hold an unsecured debt from cards and loans of more than £10,000. The findings partially explain the reluctance of consumers to put even more strain on budgets that are already feeling the pinch. 

James Falla, Managing Direct of Thomas Charles, comments on the situation: “Interest rate rises and subsequent mortgage hikes mean that people have been relying on credit for their everyday expenditure - credit they can often ill afford. 

“But these results show that Britons are finally making positive steps towards confronting the amount of debt they are carrying - this is good news for the man on the street, but may signify bad news for retailers who have come to rely upon the vast amounts of credit spent at Christmas time.” 

An estimated £1.5 trillion of debt is held in total by Britons.

Price comparison company uSwitch welcomed a ruling made yesterday by the House of Lords directing credit card providers to allow refunds to consumers who buy goods and services abroad. Consequently, credit card purchases between £100 and £30,000 made overseas will still be insured by the providers under Section 75 of the Consumer Credit Act 1974. 

With £16.4 billion spent abroad last year on credit and debit transactions, the ruling is “great news for UK consumers”, states Mike Naylor, Personal Finance Expert at uSwitch. 

“This landmark decision has finally laid to rest the issue over credit card protection for overseas transactions which has been rumbling on with credit card suppliers for several years.” 

“The decision to uphold it means that wherever in the world consumers use their credit card, they can enjoy the same protection as they do in the UK. This is especially important with the growth of internet shopping where goods are often shipped to the UK from sites based overseas.” 

Lloyds TSB and Tesco Personal Finance lodged an appeal the Consumer Credit Act, but the appeal has since been dismissed.