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Lenders will be forced to push up mortgage rates because of higher costs

Banks will almost certainly be forced to raise mortgage rates as cheap money provided by a closed Bank of England scheme comes to an end, according to the head buy-to-let specialist Landbay.

The £127bn term funding scheme, which was closed in February, was launched in August 2016 to provide lenders with low-cost loans as an economic stimulus after the Brexit vote. But with the cheap money provided by the scheme about to run out, John Goodall, CEO of Landbay, believes that lenders will soon be forced to push up mortgage rates because of the higher costs.

He said: “Mortgage lending remained resilient in May, buoyed by the affordable borrower rates that are currently on offer. First-time buyers and those remortgaging underpin much of this growth as they continue to take advantage of attractive deals amid speculation of a base rate rise.


“With inflation nearing the Bank’s 2% target, and wages falling, a rate rise has been put on hold until at least August for now. However, the Bank of England’s Term Funding Scheme coming to an end marks the inevitable rise in the cost of funding, so we might see mortgage rates rise in the coming months regardless of an interest rate rise. Until this happens, lending levels should continue to hold steady.”

The latest data from UK Finance shows that estimated gross mortgage lending for the total market in May was £22.2bn, 8.8% higher than the corresponding month last year.

Mortgage approvals by the main high street banks in May have also increased, rising by 3% compared to the same month a year earlier.

Once again, increased approval numbers were fuelled primarily by remortgaging, which is up 18% year-on-year.

In contrast, approvals for new property purchase fell 3.8% year-on-year.

UK Finance managing director of personal finance Eric Leenders commented: “May’s increase in mortgage approvals was driven by strong growth in remortgaging, as a large number of fixed-term mortgages came to an end and homeowners took advantage of a competitive market to shop around for attractive deals.

“Increased efforts by lenders to contact their customers before their current mortgage deal expires have also contributed to this rise.”

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