Deficit will push up mortgage costs

The Association of Mortgage Inter-mediaries has warned that the budget deficit will continue to drive up the cost of mortgage lending.

It says the size of the deficit will require a squeeze on public spen-ding and a widening of the tax net, if not an increase in tax.

AMI predicts that gross mortgage lending will be around £150bn for 2010, up slightly on 2009’s £143bn but far below the £363bn seen in 2007.
It says net lending in 2010 will be around £20bn and that redemption levels will slow.

Robert Sinclair, director of AMI, says: “Whoever forms the govern-ment must put in place debt reduction plans. The cost of funding borrowing will be a drain on the economy and drive up the cost of lending between banks.”

He says this will make new mortgages look less attractive than the default rates consumers are enjoying when their fixed deals end.

But he adds: “This equilibrium in the mortgage market will only last while the Bank of England base rate stays low. In the medium term a bout of inflation might seem attractive to politicians if it becomes impossible to control the national debt.”