Record high for small loans interest

The average interest rate charged on a £5,000 personal loan increased to 13.52% during the month, the highest level since records began in 2005 and up from 13.35% in September, according to the Bank of England.

There was also a sharp rise in interest rates on £10,000 loans, with these increasing from an average of 10.45% to 10.96% - the highest level since August 2002.

Financial information group Moneyfacts.co.uk attributed the rise to the HBOS group hiking rates on its loans by up to 3.5%, while a number of other smaller lenders also made changes.

Darren Cook, spokesman for Moneyfacts, said: "The HBOS group put rates up by 3.5% during the month. This is a considerable increase.

"A number of other players also raised their rates. As the possibility of defaults increases, they are looking at their risk and pricing accordingly."

Rates on other forms of unsecured borrowing also remained high, with lenders charging average interest of 15.86% on credit cards, only slightly below August's record 15.89%.

Overdraft rates were unchanged at 18.96%, only 0.01% lower than the high they reached over the summer.

But there was better news on the mortgage front, with the recent flurry of lenders who have cut the cost of their mortgage deals feeding through to lower fixed rates.

The average interest rate charged on a two-year fixed rate loan for people with at least a 25% deposit fell to 4.33% from 4.47%, while the cost of a similar five-year deal dropped to 5.67% from 5.69%.

A number of major lenders cut their rates during October, including Nationwide, Abbey, Cheltenham & Gloucester, which is part of Lloyds Banking Group, and Northern Rock, in a sign that competition is beginning to return to the market.

But despite this, the average interest rate charged on a tracker mortgage for people borrowing up to 25% of their home's value eased up to 3.91% from 3.90%.

Savers are continuing to suffer in the low interest rate environment, with the returns they can earn on fixed rate bonds falling for the second month in a row to 2.73%, down from a recent high 3.05%.

Fixed rate products have been offering the best returns to consumers as banks and building societies reward savers for locking up their money for a set period of time, enabling them to use it to fund mortgage lending.

But the recent falls in the rates offered by these products suggests competition in this area of the market is beginning to ease.

Rates paid on notice accounts also fell for the second consecutive month, dropping from an average of 0.39% to 0.36%, while the interest paid on ISAs and branch-based instant access accounts remained unchanged at 0.4% and 0.17% respectively.