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

25 August 2010
Written by rosalind renshaw

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.

Comments

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    Shhhh double dip is on the way, sooner or later.

    • 27 August 2010 11:48 AM
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    Inflation will rise due to external factors beyond our control. Oil supply is peaking but demand is ever increasing the same applies for food production, these necessities will in future take much more of our pay packet. The BOE are between a rock and a hard place, if they increase base rates by too much then our debt-ridden citizens will go bust along with the banks, if they resist increasing rates then inflation will increase rapidly and spiral out of control particularly if they have to print money due to a sluggish economy. The truth is we are already bust but the authorities found a way to postpone the inevitable

    • 25 August 2010 17:55 PM
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    Rick – you live here to pay tax to keep all the ******* in benefits to pay rent to buy to let landlords to make money. Now that would be an interesting stat , who many buy to lets are funded by those few of us who pay tax? If interest rates rise, so will rents, so will benefit payments. Nice circle. No offence to the genuine needy few.

    • 25 August 2010 13:23 PM
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    "so where is the money?"

    PeeBee you are so right - in a fiat monetry system - where exactly is "the money" this whole scenario has been artificially manipulated - the answer lies in not who has lost but who has benefited from this so called global bankruptcy - any takers?

    • 25 August 2010 13:21 PM
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    "so where is the money?"

    PeeBee you are so right - in a fiat monetry system - where exactly is "the money" this whole scenario has been artificially manipulated - the answer lies in not who has lost but who has benefited from this so called global bankruptcy - any takers?

    • 25 August 2010 13:21 PM
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    Ray: I fully appreciate that 1990 was 'a different (property) world' - but you, I, or no-one can one hundred percent certainly state that lightning cannot strike twice. Financial meltdown, as you put it, is happening every day. The world is bankrupt - every country owing money to every other... so where is the money?

    Maybe certain powers see financial meltdown as a kill or cure? Start a riot and see where it leads to? Wars and insurrection have a historical habit of bringing order where there was none...

    • 25 August 2010 13:16 PM
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    Okay I admit I was a bit rash with my last comment - the thought of pushing supermarket trolleys around in my mid 70's does somewhat appeal to me, along with eating cat food sandwiches, living in my "Build to Let" concrete shack with augmented reality wallpaper sponsored by Tesco - I count myself lucky. ;)

    • 25 August 2010 12:41 PM
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    Okay I admit I was a bit rash with my last comment - the thought of pushing supermarket trolleys around in my mid 70's does somewhat appeal to me, along with eating cat food sandwiches, living in my "Build to Let" concrete shack with augmented reality wallpaper sponsored by Tesco - I count myself lucky. ;)

    • 25 August 2010 12:35 PM
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    mark.
    Trevor Mealham.
    You are spot on!

    PeeBee.
    1988 was very different.
    Mortgages were mainly 3 times income, now many could be on 6 times income? My view is that 14% would cause financial "meltdown" in society and will not be allowed to happen.
    (I can see 5% bank rate in a year or two)

    • 25 August 2010 12:34 PM
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    Not too bothered at the rate they lend at just lend.

    • 25 August 2010 12:27 PM
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    granted PeeBee but in 1988 the financial circumstances were completely different and the country was just starting to go into recession, not (hopefully) on its way out of one

    • 25 August 2010 11:31 AM
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    1988 was a differnt economy and world. House prices and wage inflation was rampant along with a credit boom. None of these factors exist and credit is hard to get. The BoE will incrase rates to stave off inflation as a last resort - mainly to keep down any house price inflation. The main problem we have is high oil and food costs but again these are seasonal. VAT increase in January will also create a 'bubble'. The BoE is well aware that high lending rates will cause pressure on wages thus causing an inflation spiral or a house price crash due to repossessions. Precarious the balance may be but the person who made the comments to remember the addage - 'better to be thought stupid than to open one's mouth and prove it'

    • 25 August 2010 11:19 AM
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    mark: "The idea of 14% interest rates in the next two years is BEYOND STUPID!!" Perhaps you were saying that in 1988 also...? ;0)

    • 25 August 2010 11:02 AM
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    Once again people who have nothing better to say spout utter nonsense. If anybody one moment thinks there is an ounce of truth in this ridiculous statement - from a body I`ve never heard of! then I think a double dip recession is the least of our worries. I think if you want anyform of media coverage come up with something stupid - people will print it ps I think house sales will doble in voulume in the next 6 months and the average house price will be £1,000,000 within 3 years!!!!!

    • 25 August 2010 10:58 AM
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    Such reports can only throw more concern to Jo Public who knows no better, but who the industry relies on to fund with property purchases. It's irresponsible. To predict such absolute figures when so many other factors can effect matters on the way is stupidity. But I guess another crystal ball shop got another sale. Or maybe it was spin the bottle or spin the wheel.

    • 25 August 2010 10:29 AM
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    Perhaps now is the time to train as a bankruptcy petitioner!

    • 25 August 2010 10:21 AM
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    Yet another totally ridiculous article. Does the editor of this web site not have any judgement, or is it just a case of "offer the sensasional, and they'll think we're a great source of news"? The idea of 14% interest rates in the next two years is BEYOND STUPID ! ! How would ANYONE be able to pay their mortgage. Are you really suggesting that the Bank of England, and all other lending sources, would want to see the vast majority of mortgaged homes reposessed? Because that is what would happen. Please can we have some sensible articles !
    And Rick Deckard, no-one is forcing you to live in this country. If you don't like it, please feel free to leave. No one will stop you. That's a promise ;-)

    • 25 August 2010 10:16 AM
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    the fact are that there are two main drivers which push up inflation the first is wage inflation which put more money into the economy ( when did you last have a wage rise) and the second is house price rises where the owner may remortgage to take out the equity and put the money into the economy however with the restrictions on lending which are showing no signs of easing even if there are house prise rises home owners can not get at the equity so this will not pose a risk to inflation.

    Just two other points mortgage lending was only 1.96 bn last month and the author of the report on interest rates needs to ask the question as to how much money went out of the country in 2007 and 2008? all the bank of england are doing is filling part of the void created.

    • 25 August 2010 10:14 AM
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    Having worked in the industry when rates went up to these levels before I'm thinking that the general financial landscape of the UK is very different now - If this was to occur then the fall out would be far worse and I really am thinking civil unrest molotov cocktails and public lynchings as middle class britain spills onto the streets - earnings simply have not gone up in line with house prices and we already know we are on a tight rope - how many buy to let portfolios could be serviced at this level? Ho many family homes re-mortgaged to the hilt? Can somebody remind me why I continue to live in this country?

    • 25 August 2010 10:05 AM
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