- Households paying more than 40% of their income into mortgage debt stood at 1.4% in the third quarter of last year
- That’s down from 1.9% before the financial crisis
Some British households could struggle to fund their mortgage repayments if rates rise to as little as 2 per cent, the Bank of England suggested.
Britons’ debt as a share of income has fallen by almost 20 per cent since its peak before the crisis, with most households currently able to repay their mortgage debts as interest rates remain low, policymakers said.
However, a rise of about 1.5 per cent in the base rate would put a proportion of households with large debts in a difficult position with their mortgages, policymakers said.
Mortgage debt: Mortgage repayments stood at 7.6 per cent of total income in the third quarter of last year, down from 9 per cent before the crisis
The Bank held interest rates at 0.5 per cent earlier this month, although it suggested that it would raise them gradually over the next couple of years, with many commentators expecting a small rise of 0.25 per cent as soon as May.
Minutes from that meeting, which were published today, show that the proportion of households paying more than 40 per cent of their income in mortgage repayments stood at 1.4 per cent in the third quarter of last year, lower than 1.9 per cent before the crisis.
However, the minutes add: ‘Mortgage interest rates would need to increase by around 150 basis points with no change in household income for this ratio to return to its pre-crisis average […]’.
Policymakers also said that it was important not to get too comfortable about current rate of debt not being yet at pre-crisis levels given ‘the scale of vulnerabilities that had built up then’.
The document also said that total mortgage repayments stood at 7.6 per cent of total income in the third quarter of last year, down from 9 per cent before the crisis.
The Bank noted that changes to rules for large loans preventing banks to lend in excess of 4.5 times the borrowers’ incomes had stopped a marked increase in the number of highly-indebted households.
However, it also said that there had been an increase in loans that were just below that threshold.
The Bank noted that credit card, personal loans and overdraft borrowing remained high, despite having slowed in recent months.
Consumer credit rose by 9.3 per cent in the year to January, down from a peak of 10.9 per cent in November 2016. This mostly reflected a reduction in the growth rate of car finance, the Bank said.