The war amongst lenders to be able to offer the most competitive cheap loan deal on an unsecured loan is continuing, as Sainsbury’s Finance have just announced their new cheap loan deal, which undercuts their main lending rivals.

The latest round of loan rate reductions started a few weeks ago, with Tesco bank reducing the rate on their unsecured loans between £7,500 and £14,999 to just 6.4 per cent. Within days of this announcement, the Nationwide Building Society lowered its rate on the same loan amount band, to just 6.2 per cent, for its flex account customers.

Sainsbury’s have now announced that their loan rates on unsecured loans of between £7,500 and £14,999 will start from just 6.2 per cent, for loans with a term of up to 5 years. However, this rate will be lowered to just 6.1 per cent for loan terms of three years or less, as an incentive for borrowers to pay off their loans quicker.

The advertised loan rates will be available to nectar card holders only and will be subject to an individual’s personal circumstances and credit score. The loans will be available for both new purchases, such as a car, or as a debt consolidation loan, which could save existing borrowers a significant amount of money compared with their existing loan rates.

Tim Moss of Moneysupermarket.com said “This is really great news for customers who are looking for a loan at a good rate and Sainsbury’s have also made it slightly more competitive to take the loan over a shorter term, which is commendable and means the loan could be paid off sooner.”

“We haven’t seen a loan product with this APR since 2007 and it could be a sign that other loan providers may follow suit soon and cut their interest rates and the next round of the loan rate wars begins.”

The unsecured loan and buy to let loan company, Paragon, has announced that it has just completed the purchase of a large unsecured loan book from the largely nationalised bank, the Royal Bank of Scotland.

Paragon has been acquiring portfolios of unsecured loans from various loan and credit companies over recent years and the latest acquisition will add to its already extensive loan portfolio as a part of the company’s long term investment strategy.

The loan book from the Royal Bank of Scotland is made up of personal loans to consumers in the unsecured loans market and has been bought for a total sum of £43.2 million. This will not only ad to Paragon’s portfolio, but will also bring some funding in for the Royal Bank of Scotland, who were almost nationalised few years ago when they had to be bailed out with a large loan from the government, in order to save the bank from going under.

Paragon has bought the unsecured loan package from RBS through its investment division Idem Capital.

Although many financial institutions have cause themselves major problems in the recent past, by buying up loan books which contain bad credit loans and loans with a high risk of defaulting, generally known as “toxic loans”, Paragon are confident with their latest acquisition, as they have been managing the RBS portfolio of loans for the past two years.

Nigel Terrington of Paragon said “Paragon, through Idem Capital, has made great progress with its strategy. This is the sixth portfolio acquired since mid 2009, of which four have been acquired in 2011, bringing the total investment to date to £89.5 million. We continue to see further attractive portfolio acquisition opportunities.”

Although many potential borrowers in the UK are still unable to get the home owner loan they require, there are still signs of improvement in this area, as the number of available home owner loan products has increased by 96 per cent over the course of the last twelve months.

According to the latest figures from Mortgage Brain, the total number of different home owner loan products which are currently available on the market has increased to 14,361 by the beginning of October this year, which is the highest number of available loan deals within the last 41 months.

Whilst this may seem like a lot, it is a long way from the high point of available loan deals which were available prior to the credit crunch, when there were 35,664 different loan deals to choose from, including high loan to value products, self certification loans and bad credit loans, which have now all but disappeared from the home owner loan market altogether.

The majority of new loan deals being introduced to the market are all aimed at prime borrowers, with a perfect credit rating, who only require a relatively low loan to value.

The increase in home owner loan products has been spread relatively evenly across the main types of available loan deals, which are: variable rates, tracker rates and fixed rate loans, although the number of new buy to let loan deals has seen significantly higher growth rates.

Mark Lofthouse of Mortgage Brain said “Whilst on the face of it these figures may indicate a huge surge in availability, it’s important to remember that the present total is still less than half of the high point of the market.”

“It is just over four years since the number of home owner loan and mortgage products reached an all time high of 35,664.”

At the height of the credit crunch, back in 2008 when the majority of lenders had almost stopped offering new loans altogether, one of the worst hit areas of the loans market was that of buy to let loans.

However, since that time, buy to let loan deals have seen some of the biggest levels of growth in the home owner loan market, with an increase of 104 per cent in the number of different loan deals for landlords to choose from.

Back in October 2008, there were just 237 different buy to let loan products for property investors to choose from, however this number has increased to 483 currently, according to the independent financial research company, Defaqto.

The proportion of buy to let loan deals which are only available through financial advisers or loan brokers has also increased over this same period, from 24 per cent of deals back in 2008, to 60 per cent currently. 86 per cent of all buy to let loan deals are now available through loan brokers and financial intermediaries, who can offer valuable advice to borrowers, particularly first time landlords.

One of the main reasons for the growth in the buy to let loan market is due to the difficulty in getting onto the housing and home owner loan market, particularly for first time buyers, who often struggle to save a large enough deposit or achieve affordability criteria on many home owner loan and mortgage products.

David Black of Defaqto said “The last few years have seen significant growth in the number of buy to let loan products on the market.”
“This shows that, although the buy to let sector has contracted in terms of lending levels in recent years, the market is certainly becoming more buoyant with buy to let regarded by many as a potential growth area.”

In recent years, many borrowers with a home owner loan or mortgage, have opted for a fixed rate loan deal, in order to protect their monthly loan repayments against the risk of an increase in interest rates from their lender or the Bank of England.

Whilst this may have been a good idea at the time, to give peace of mind on their loan repayments, many borrowers have ended up paying over the odds for their home owner loan, due to being trapped in a fixed rate loan deal which charges a much higher rate than an equivalent variable rate loan.

As a result of the falling base rate, home owner loan customers whose fixed rate deals are coming to an end, have found that, in some cases, they are now saving hundreds of pounds each month on their loan repayments, as they go on to their lenders reversionary variable rate.

New figures from the Council of Mortgage Lenders (CML) have shown that somewhere in the region of 1.8 million borrowers are now saving large amounts of money on their previously fixed rate loan, with the average household saving around £2,600 per year on their loan interest payments.

It has been estimated that the base rate will rise to around 0.9 per cent by the end of next year and then to 2 per cent by the end of 2014. The CML have calculated that even with these rate rises, 85 per cent of borrowers will still be better off on their loan than they were under their fixed rate deal and 58 per cent of borrowers will still have a cheaper loan deal by the end of 2014.

Paul Smee of the CML said “Many households have seen a significant windfall from reverting onto variable rates over the past few years, although this will be less true for those coming off short term fixed rates in the near future.”