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Experts warn rate rises to follow scrapping of FLS for mortgages

Warning that Funding for Lending move could see rates hiked by 0.75 per cent over the next few months.

Mortgage experts are confident the Bank of England’s decision to scrap the Funding for Lending Scheme for residential mortgages will not slash lending volumes but warn of rising rates in the coming months.

The FLS was planned to last until January 2015 but last week the Bank announced there will be no new cheap funding available to banks for mortgage lending from February, given the pick-up in housing market activity. Business loans will still be eligible until January 2015.

Since its launch in August 2012, the FLS has been credited for allowing banks to offer some of the lowest mortgage rates ever seen in the UK.

Experts are warning rates on new mortgages could increase by as much as 0.75 per cent due to FLS being scrapped.

Industry consultant Mehrdad Yousefi says: “The market has momentum now throughout the UK, partly because of Help to Buy.

“But it is possible mortgage rates could go up by as much as 0.75 per cent over the next three or four months.”

John Charcol senior technical manager Ray Boulger says: “Demand is picking up – we are seeing an increased level of activity in the market and the signs are that is going to continue – so I would probably reduce my gross lending forecast for next year from £200bn to £195bn.

“It is at least two or three months away before we start to see any rise in rates at the earliest, unless the market moves on when it thinks Bank rate is going to rise.”

See page 15 for more on the Bank’s decision to scrap Funding for Lending for mortgages

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