Mortgage rates to increase? Asks North London Mortgage Broker, London Mortgage Advice Tuesday, 11th May 2010

In its Quarterly Economic Bulletin, the trade body, The Association of Mortgage Intermediaries (AMI) has warned that the cost of mortgage borrowing could be set to rise slightly this year. It suggests that inter-bank rates (the rates banks charge each other to borrow money from one another) will increase this year, and that mortgage lenders will have to pass on their increased cost of borrowing to mortgage customers in order to maintain profit margins.

Many borrowers will be coming to the end of very low fixed and tracker rate mortgage deals, and will see their monthly repayments increase, at the same time AMI points out.

The Bank of England might be forced to increase the Bank Base Rate from its current historic low of 0.5%, which in turn would increase the cost of mortgages for many thousands of borrowers, It also says, if house price inflation takes off.

The association also believes that activity in the housing market will slow down as a result of the economic squeeze, and actually predicts that the rate of house price inflation will fall in the latter half of the year due to rising taxes and mortgage costs.

“Whoever forms the next Government must put in place real debt reduction plans. The cost of funding the current levels of borrowing will be a continual drain on the economy and drives up the cost of lending between banks.Robert Sinclair, Director of AMI, said.

Continuing along the same line,“This continues to make new mortgages look less attractive than the current default rates many consumers are enjoying after their fixed term deals end. However, this equilibrium in mortgage markets will only last while base rates stay very low.

And saying further, “Of concern to the Treasury must be house price inflation running towards double digits, but latest trends are that this is slowing considerably.”