New rules 'will cause mortgage price hike'

Mortgage costs could increase as a result of new rules proposed to make the banking sector safer.

The Bank of England wants to significantly increase the amount of money that “systematically important” banks must hold in reserve when they lend, and the Bank’s Financial Policy Committee will demand that reserves are higher even than the international standard proposed by the Basel Committee.

It is thought that anticipation of the new rules has already increased lending costs, with banks pricing the changes in to their offerings.

Last week Lloyds warned that the new rules “will have an immediate impact…on pricing.”

But commentators are also concerned about the impact of other changes on mortgage costs. Earlier this year research from Savills and the Financial Times suggested that mortgage repayments could double in the event that the Bank of England’s base rate is increased to 3 per cent.

The research followed Bank governor Mark Carney’s suggestion that there would be a “new normal” for the base rate of 2.5 per cent once rates begin to rise again.

According to the Savills report a 3 per cent rate would mean that the average borrower paid £3,600 more each year.