Mortgage rates'could soar to 14% in next two years'

News Category: Industry News

Mortgage rates could soar to 14% over the next two years.



Moneyfacts is the latest to issue such a warning – the starkest yet.



It follows hard on the heels of another warning, that interest rates could rise to 2.5% over the next year and to 8% by 2012 – pushing mortgage rates up by an average £900 a month.



That alert has come from a think-tank, the Policy Exchange, where Andrew Lilico said the Bank of England would have to raise base rates in order to keep on top of inflation. 

He said inflation was inevitable after quantitative easing pumped £200bn into the economy.



Former BoE deputy governor Sir John Gieve said last month that he expects interest rates to rise “faster than the market currently expects”.



Lilico also predicts a brief double-dip recession early next year, followed by an economic boom. But he warned that the boom would quickly run out of control.



If base rates do rise to 8% in 2012 and lenders keep their current average mark-up of 3.5% on mortgages, then borrowers would be paying mortgage rates of around 11.5%.

Moneyfacts agrees that base rates could rise to 8% by 2010 but believes that the mark-up charged by lenders would be more, elevating mortgage rates to 12–14% and landing borrowers with an extra £1,000 or so to find each month.

But a member of the Bank of England’s Monetary Policy Committee, economist Dr Martin Wheale, said he would not be voting “any time soon” for a rise in base rates.

Worryingly, however, he did not rule out a double dip, saying there is a “real danger” of the chance of another crisis in the financial sector.

Weale, the newest member of the MPC, also said that the Bank of England’s growth forecasts could be optimistic. Unemployment, falls in house prices and further problems for banks are all possible risks, he said.


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