Mortgage Rates Set To Rise In 2012
Fri, 02 Dec 2011
Mortgage rates could be driven up by rising wholesale funding costs next year, the Bank of England has warned.

In its Financial Stability Report, the BoE revealed mortgage lending has seen profitability drop since 2009 as mortgage rates haven’t reflected rising wholesale costs.

But the Bank believes lenders may start to pass on their higher cost of funding next year.

The report said: "At the beginning of the financial crisis when funding costs rose sharply banks were relatively slow in updating the price of new mortgages and the residual remained negative for around a year. This suggests it may be during 2012 that any significant increase in banks' lending rates occurs."

Credit availability was reported to have risen slightly in the third quarter of this year, particularly for high LTV mortgages, but the Bank said that lenders may soon be starting "to pass on higher funding costs to mortgage customers through higher prices".

However, the report added that banks have significantly reduced their reliance on wholesale markets and as a result may adopt a wait and see approach before introducing any significant hikes in mortgage rates .

The BoE also revealed that a record level of mortgage debt was repaid in the three months to June 2011.

According to its latest figures, UK homeowners paid back £9.15 billion more than they took out from their mortgages - the most that has been repaid in a three-month period since 1970, when the Bank of England started collecting data.
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