Bank of England - interest rates to rise in 2012

The Bank of England has said that mortgage interest rates could increase next year, as lenders pass on the increased costs of wholesale funding.

Its Financial Stability Report, published today, said that, since 2009, the profitability of new mortgage lending has reduced, because lenders have failed to keep rates in line with higher wholesale funding and other costs.

With costs continuing to rise, the Bank warned that lenders may start to pass this cost on to borrowers by increasing mortgage rates in order to maintain their profit margins.

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."

The report added: "While credit availability was reported to have increased slightly in 2011 Q3, particularly for high LTV mortgages, subsequent market intelligence suggests that, as with corporate lending, some banks may be starting to pass on higher funding costs to mortgage customers through higher prices."

If you have concerns about how a rise in mortgage rates could affect you and would like to give consideration as to how best to protect yourself against such a rise, please feel free to get in touch.

As always , thanks for your attention.

Mark (mark@themortgagemonkey.co.uk)