Mortgage rate rise predicted for 2012

The Bank of England has warned of a mortgage rate rise for 2012. BOE revealed in its Financial Stability Report that mortgage lending has seen a reduction in profitability since 2009. With costs continuing to rise, the BOE has warned that to maintain their profit margins, lenders may start to pass these costs on to borrowers. Current mortgage rates have not reflected the rising wholesale costs for sometime and banks could start increasing mortgage rates next year. The BOE 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 went on to say that banks have reduced their reliance on wholesale markets significantly, and suggested that lenders are waiting to see whether funding conditions continue before setting a significant mortgage rate rise. The report further added that "Market intelligence suggests retail funding costs are being bid up too, as banks attempt to attract more retail deposits and reduce their reliance on wholesale funding. This suggests pass-through will eventually occur." Reports suggest that there has been a slight rise in credit availability in 2011 particularly for high LTV mortgages, however the BOE believes that some banks may still be planning a further mortgage rate rise. Analysis has shown that the gap between customer loans and deposits fell by £600bn since the credit crisis began.