Mortgage costs will be pushed up by budget deficit

Mortgage costs will be pushed up by budget deficit

09 May 2010 / by Rachael Stiles

Whichever party becomes the next Government should work to cut the budget deficit and prevent the cost of mortgages from being pushed up further, says the Association of Mortgage Intermediaries.

In its latest Quarterly Economic Bulletin on the UK economy, the AMI has voiced concerns about the size of the budget deficit and the affect this is having and could continue to have upon mortgage financing.

Mortgage lending will continue to be not only more expensive, but also constricted while budget deficit remains, the AIM suggests; it predicts gross mortgage lending to be around £150billion in 2010, far below its peak of £363million in 2007.

Robert Sinclair, director of the AMI, said that whichever party, or parties, form the next Government must implement "real debt reduction plans. The cost of funding the current levels of borrowing will be a continual drain on the economy and drives up the cost of lending between banks.

"This continues to make new mortgages look less attractive than the current default rates many consumers are enjoying after their fixed term deals end.  However, this equilibrium in mortgage markets will only last while base rates stay very low.

Mr Sinclair added that politicians might start turning to inflation in order to control the deficit and reduce the national debt, but he warned that this would "represent a painful transfer of wealth from savers to borrowers, reducing the value of debts relative to earnings, but eroding the value of savings in the process."

While mortgage lending has been creeping back up in recent months, in order to see "real improvement" this year the Government needs to go further in supporting borrowers and encouraging mortgage providers to lend more.

"There is a distinct need to ensure that the intermediary sector continues to be supported, in order to provide customers with the full range of advice and help to review all the options available to them," he said.

© Fair Investment Company Ltd