Over the last few years, personal loan rates have fallen to the extent that it now possible to obtain a loan at cheaper interest rates than a mortgage, reported The Telegraph in December 2016.
Sainsbury’s Bank has announced that it is offering personal loans at 2.9% interest, which is lower than many mortgages. Holders of Sainsbury’s Nectar cards get an even better rate of 2.8%. The average standard variable rate for a mortgage is 4.62%, though cheaper rates can be obtained on two- and five-year fixed-rate mortgages.
There will not be a rush to take out a personal loan for house purchases however, as Sainsbury’s has said that it will not grant loans intended for property purchases. This means that its personal loans cannot be used to pay the deposit for a house mortgage or finance property purchases in Britain or abroad. Sainsbury’s will also not allow its loans to be used to pay off all or part of an existing mortgage.
Loans can be used for home improvements to or consolidate existing debts. Sainsbury’s restricts the amount that can be borrowed at between £7,500 and £19,999.
For homebuyers, there are many mortgage deals available at low rates. Mortgage brokers have access to deals that are not available directly from loan companies or through price comparison sites.
If the borrower becomes out of work through sickness or an accident, then it will be difficult to obtain a personal loan to cover the household bills. A broker can arrange mortgage protection insurance that will cover mortgages payments if unemployed.