Mortgage interest rates to rise? asks London Mortgage Broker, London Mortgage Advice. Monday, 16th November 2009

As increased regulation and the battle for savers' deposits forces up costs for lenders so mortgage costs are likely to increase'

The new and more onerous rules regarding the amount of capital building societies need to set aside against new lending will be costly and could damage the mortgage industry.

In trying to compete against state-owned banks like Northen Rock and RBS, which can afford to offer high rates to savers because they have been bailed out to the tune of billions of pounds by the taxpayer building societies are having to fight hard to get people to increase their savings.

The reaseon why this is important is that Building Societies rely heavily on saver’s deposits to fund their mortgage lending.

They suffer unfair competition. For instance, National Savings & Investments, the Treasury-owned savings provider, is offering competitive returns on its savings accounts such as their newly launched market-leading interest rate of 3.95 per cent for a one-year fixed-rate bond.

There is fierce competition for our savings that the rates offered are really uneconomic.

It is inevitable that interest rt5es will be forced up to balance the books.

In addition to this The Financial Services Authority’s new rules on the amount of capital lenders must set aside to act as a buffer to guard against future downturns in the economy will also bring more pressure to bear on the cost of mortgages, he warned.