Money Insider: Cheaper rates on bank loans don't go far enough

It's not just the high-street retailers that are trying to encourage us to keep on spending. Banks are also getting in on the act with some lower personal loan rates on offer as we kick off 2011.

The Government wants Britain to spend its way out of recession, but the 2.5 per cent VAT increase and the prospect of more job cuts do not really provide consumers with much of an incentive, so news of lower loan rates will be music to the ears of the Chancellor and his colleagues.

Over the past 10 days we have seen Tesco Bank, HSBC, Barclays, First Direct and Sainsbury's Finance all cut rates on personal loans above £7,000. Sainsbury's is currently the best buy at an annual percentage rate (APR) of 7.4 per cent after trimming the cost by 0.3 per cent for its Nectar card customers.

While this is welcome news, all the lower rate deals are reserved for existing customers only (with the exception of Tesco Bank). The other downside is that lower interest rates are not available on smaller borrowings, so for anyone looking to borrow a sum of £2,000 to £3,000, the interest will be well into double figures and in some cases approaching 20 per cent APR.

Smaller loans may be considered by lenders to be less profitable and historically a greater risk. However, if consumer spending is to remain strong throughout this year they need to do their bit by introducing rate reductions across the board.

Norwich BS revises gold account costs

On Tuesday, the Norwich and Peterborough Building Society revamped its Gold Classic Current Account. The minimum funding requirement was reduced from £1,500 to £500 per month and the charge for unpaid items slashed from £29.50 to £15.

A great new benefit of the account is that there are no charges for cash withdrawals by debit card overseas, on or overseas retail transactions, which is a big plus point. But while its overdraft charges are now said to be "more transparent", it will not necessarily work out cheaper for everyone.

With the previous account, the effective annual percentage rate (EAR) on authorised overdrafts was 11.74 per cent, while the charge for unauthorised borrowing was 24.9 per cent. These charges have been replaced with just one EAR of 17.9 per cent. And if you make use of your agreed overdraft, you now pay a £5 monthly fee.

Affordable new homes are the only answer

It is not often I agree with Government economic policy, but I am fully behind the Housing minister, Grant Shapps, who has called for greater stability in property prices. He hit the nail on the head by saying: "Property should be primarily thought of as a place to be your home."

For too long, people were obsessed with bricks and mortar and saw their home as a cash machine to be raided if they needed a new car or to pay off credit cards. Many also saw constant house price inflation as a reason not to contribute to a pension scheme, expecting their home to be a source of income in later life.

Property prices staying flat or falling slightly will not be the end of the world some scaremongers lead us to believe. In fact, price stability is exactly what is needed if large numbers of first-time buyers are ever to return to the market. We don't want our children forced out of it because they cannot raise a £20,000 deposit or do not qualify for a mortgage because the borrowing equates to six times their annual salary.

Let's hope the Coalition backs its words with actions. Building more affordable homes will help to increase supply and dampen prices, so over to you, Mr Shapps.

Andrew Hagger is an analyst at Moneynet.co.uk