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Highly indebted households increase after banks loosen lending – Bank of England

  • 27/06/2018
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Highly indebted households increase after banks loosen lending  – Bank of England
The number of highly indebted homes has edged up in the past couple of years, as lenders loosen underwriting standards, according to the Bank of England’s Financial Policy Committee (FPC).


Mortgage debt in Britain stands at £1.4trn, making up 75% of total UK household debt at the end of 2017, the FPC said it in its financial stability report, which analyses risks to the UK economy.

Bank risk appetites for mortgage lending has increased in recent years, with higher loan to income (LTI) multiples and the difference in price between higher and lower loan to value (LTV) mortgages falling, the FPC said.

However, tighter regulation has stopped a significant increase in highly indebted households

Rules put in place since the financial crisis mean that banks can only have 15% of new lending at LTI of 4.5% and above.

And borrowers must still be able to afford their mortgages if, at any point over the first five years of the loan, their mortgage rate were to be three percentage points higher than the reversion rate.

Lenders have “probably acted to support mortgage lending” from headwinds to the market like subdued consumer confidence by relaxing criteria, the FPC said.

Rising prices


And there have been signs of lenders raising prices in response to the increased costs of funding mortgages.

The share of households with mortgage debt-servicing ratio (DSR) at or above 40%, the point when households become highly sensitive to changes in interest rates, has increased to 1.3%, from its recent low of 0.9% in 2015.

Overall the FPC judged that, apart from Brexit risks, domestic threats to financial stability remain “standard”.

At the same time, global risks have increased and include Italian borrowing and vulnerabilities in the euro.

The FPC also flagged debt levels in China and global trade tensions as a concern.

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