Building Societies believe mortgage costs to rise

Building Societies are concerned about the impact of the Financial Services Compensation Scheme (FSCS) on their business and believe mortgage costs will have to rise to meet the cost.

According to research from the Building Societies Association (BSA), 60% of building society CEOs believe mortgage rates will have to rise to meet the FSCS cost.

Worryingly, 53% also think savings rates will have to fall to cover the costs.

All this despite the fact that most of the CEOs believe the Bank of England base rate will keep at 0.5% until the end of 2009.

Beleive it or not, building societies are generally positive about the outlook for the rest of 2009, with many CEO’s believing that the building society model is trusted by the public. This coupled with tailored products for a local client base it is considered will help see them through the difficult times.

Clearly though building societies recognise the challenge of matching the needs of saver and borrower and maintaining profit levels.

Interestingly, the BSA research found that the average forecast house price change over 2009 is -10%, but for 2010 it’s only -0.8%.

Adrain Coles, Director-General of the BSA, said ‘The next year is not seen as a period of growth, but a time when balance sheets can be strengthened, and the business primed to take advantage when market conditions become more favourable.’

The suggestion by the building societies of a need to raise mortgage costs sits alongside news from earlier this week that fixed rate mortgage costs have risen.

Overall it’s not looking good for mortgage costs going forward.