Its Financial Policy Committee (FPC) said in the latest Financial Stability Report that global risks were “particularly relevant” to UK financial stability.
However, it said it continued to believe the UK’s banking system was able to support households and businesses even if economic and financial conditions substantially worsened.
Households show signs of financial resilience
The FPC said the aggregate UK household debt-to-income ratio, household debt as a percentage of disposable income, had continued to fall in Q4 2024 and was at its lowest since 2001.
Further, the aggregate mortgage-debt servicing ratio, the share of post-tax income spent on mortgage payments, was expected to rise. The increase was predicted to be lower than at the time of the FPC’s November report and remain “well below” that seen in the 1990s and during the global financial crisis peaks.
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The share of UK mortgage lending at high-loan-to-income (LTI) ratios rose to from 7% in Q3 to 7.8% in Q4, but was considerably lower than the FPC’s 15% limit. It said this was partially due to mortgage interest rates limiting affordability for many high-LTI borrowers at origination and under higher stressed rates.
There was also a rise in demand for mortgage lending amid an easing in credit availability, compared to the previous quarter.
During the quarter, mortgage and consumer credit arrears stayed low.
It said UK household and corporate borrowers were resilient, but global developments posed a risk.
Richard Pinch, senior director for risk at Broadstone, said: “While the Bank of England’s Financial Stability Report highlights the significantly enhanced risks to global economies, it remains confident in the resilience of UK households, business and banking system, even if financial conditions were to worsen.
“Despite plunging equity markets, this update should provide reassurance, that was echoed by the Chancellor yesterday, that the UK’s financial system remains resilient.
“High levels of capitalisation and liquidity support this confidence, which suggests that the majority of businesses and households should remain stable and resilient even in the face of this notable period of market turbulence.”
