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AMI warns budget deficit will drive up cost of lending


The Association of Mortgage Intermediaries has warned that the budget deficit is driving up the cost of lending and is demanding the next Government put in place “real” debt reduction plans.

AMI’s latest Quarterly Economic Bulletin, which looks at the economy, housing and mortgage markets, suggests gross mortgage lending will be around £150bn for 2010, slightly ahead of the £143bn managed in 2009, but still far below the £363m peak in 2007.

It says net lending in 2010 will be around £20bn, with slowing redemption levels.

Director Robert Sinclair (pictured) has urged the next Government to put in place “real” debt reduction plans.

He says: “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.
“In the medium term, a bout of inflation might start to look attractive to politicians if it becomes impossible to control the deficit and bring down the national debt through higher taxes and lower spending. It 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.

“Of concern to the Treasury must be house price inflation running towards double digits, but latest trends are that this is slowing considerably.”
Sinclair adds that remortgage levels remain low and calls on the Government to work harder to get lenders lending again if we are to see a real improvement in the mortgage market throughout 2010.

He says: “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.”


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There is one comment at the moment, we would love to hear your opinion too.

  1. At last an article about mortgages and expectations that isn’t full of spin. What people want to hear is an honest explanation of what they can expect to happen, instead of the nonsense propaganda that only serves to make the consumer more uncertain about the future.

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