The credit rating and financial risk analysts, Moodys Investors Services is forecasting that the Bank of England base rate will increase by 25 bps at the end of 2011 and by a further 1% during 2012 (bringing the bank rate to 1.75% by the end of 2012 from 0.5% currently).

Contrary to the fears expressed by some other market analysts Moody’s say that prime buy-to-let (BTL) borrowers will be able to cope with ‘mild’ interest-rate increases.

Their comment is underlined by the performance of the UK buy-to-let (residential mortgage-backed securities (RMBS) market which improved in the three-month period to May 2011, as the 90+ day delinquency trend decreased to 1.83% from the 1.96% recorded in February 2011. During this period, outstanding repossessions remained stable at 0.14% and cumulative losses increased slightly to 0.43% from 0.38% in February 2011.

Moodys now expects that UK GDP will grow 1.6% in 2011 and 2.1% in 2012, after 1.3% growth in 2010 and that the unemployment rate will remain broadly stable, ranging between 7.8% and 8.0% during 2011 and 2012 (7.8% in 2010).

Personal insolvencies fell 15.5% year-on-year in Q1 2010 and Moodys expects this falling trend to continue as the economy recovers gradually and that house prices will remain broadly flat for the next 18 months and the number of house-purchase transactions is likely to remain significantly below the long-term average.