Bad credit loans: Lenders face conundrum with base rate rises

Future increases in the interest base rate would result in a "great conundrum" for mortgage lenders, bad credit loan customers have been told.

Andy Pratt, chief operating officer at Alexander Hall, said that recent years have seen a shift in the dynamics of the mortgage market, with lenders continuing to increase their margin because funding costs have remained high as a result of restricted availability of credit.

Mr Pratt said: "As [interest] rates increase up to 1.5 and two per cent, the question is what the lenders will do with standard variable rates. They could find it a bit tricky if they pushed their standard variable rate up by the same amount."

A recent report by the Building Societies Association has suggested ways that the government and housing industry could help borrowers who are experiencing difficulties in repaying their mortgage, including those that are relying on bad credit loans to make up a shortfall in their funding.