Days of rock bottom loan rates could be numbered

With the payment protection insurance (PPI) market looking set to go under investigation by the Competition Commission (CC), there is speculation in the industry that its regulation could negatively affect the loans industry.

Low cost interest rates on loans could be a thing of a past as providers try to regain the income lost from huge commissions charged on PPI policies.

The PPI market is currently worth £4.7bn in commissions to lenders. The Financial Services Authority's tightening up on PPI to stop sloppy sales practices and over-inflated premiums will also mean that the sector will no longer be able to subsidise low cost lending.

Yet again, this is another case of the consumer losing out.

Speaking to Mortgage Strategy, the commercial director of Yes Loans, Matt Cottle, said: "PPI regulation is something that will affect the industry, there's no doubt about that. We do not budget for PPI profits ourselves but I know of many firms that have relied on it in the past."

The firms that have relied on ripping off customers charge up to five times more for loan protection than independent providers of PPI like the ethical BritishInsurance.com who make minimal commissions.

If companies had acted honorably in the first place and had not over priced their PPI policies, the market would have remained steady and so would the interest rates charged on lending.

Currently, there are lots of lenders out there who are linking their profits to protection policies - and are making a lot out of it.

Now they are faced with the task of finding profits elsewhere – and low cost interest rates will probably suffer because of this.