Barker warns mortgage rates set to surge

Tim Wallace
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THE INCREASED cost of banking regulation is set to push up mortgage costs for years to come, former Bank of England policymaker Kate Barker warned yesterday.

When the base rate goes up the spread between mortgages and the Bank rate could stay as high as it is now, rather than shrinking back to its pre-crisis level, the ex- monetary policy committee member said.

That is because new capital rules add extra costs to bank loans.

“Regulation on capital and liquidity levels is right to have, but that does mean narrow spreads might not come back,” she said.

In 2006 a typical standard variable mortgage cost borrowers around 1.5 percentage points more than base rate. Now it is 3.5 points more.

If that were to hold as base rate rises, a base rate of 4.5 per cent may see borrowers paying 8.5 per cent.

“These are not numbers to be alarmed about, but certainly very aware of.”

“From a macro point of view, this is manageable; from a micro point of view, it will be difficult,” Barker added.