The trade body predicts there will be two base rate rises by the end of 2019, with the next hike to take place in either May, August or November.
The increase in rates is likely to push up the number of arrears, and possibly repossessions, as vulnerable households or those stuck on Standard Variable Rates (SVR) suffer the higher costs, AMI said.
But AMI suggested a base rate rise could also improve affordability for other borrowers.
In its quarterly report, the trade body said: “A rise in the base rate would ease pressure on stress-testing undertaken by lenders assessing new mortgage applications, which could help to improve affordability for borrowers with more stable finances, as at that end of the risk spectrum not all the increase might be passed on in higher rates.”
AMI chief executive Robert Sinclair (pictured) told Mortgage Solutions that if the base rate went to 1%, the Bank of England’s Financial Policy Committee (FPC) would likely recommend the stress rate – that determines affordability – is reduced.
He added: “Not reducing the stress means that gradually people would be priced out of the market.”
Lending within risk parameters
The Bank of England recently noted that mortgage lending has become somewhat riskier in recent months, as provider’s margins come under pressure.
But there is no cause for concern, according to AMI.
The report said: “We are of the opinion that the vast majority of mortgage lending remains well within acceptable affordability and risk parameters.
“More adventurous product development should be encouraged and is not a proxy for higher risk lending.”
But the report added that within the specialist sectors of the market, a tight rein should be kept over rising loan to income and loan to value ratios.
AMI predicted that 2018 is set to be the strongest year for the mortgage market since its peak in 2007, largely thanks to a focus on product transfers by lenders.
The trade body expects £270bn in gross residential mortgage lending across purchase, remortgage and further advance, and another £140bn in product transfer lending.
