Wednesday, 26 June 2013

Mortgage borrowers vulnerable to higher rates

Bank of England Financial Stability Report's "significant" worries about UK borrowers:

"A significant cohort of UK borrowers could experience financial difficulties if interest rates were to rise during a period of subdued income growth.

"...households accounting for 9% of mortgage debt would need to take some kind of action — such as cut essential spending, earn more income (for example, by working longer hours), or change mortgage — in order to afford their debt payments if interest rates were to rise by just 1 percentage point...

"This would rise to 20% of mortgage debt if interest rates were to rise by 2 percentage points. Provided borrowers are able to take actions in order to afford their debt payments, then this may not lead to significantly higher losses for banks.

"The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), with other Bank staff, should provide an assessment to the FPC (Financial Policy Committee) of the vulnerability of borrowers and financial institutions to sharp upward movements in long-term interest rates and credit spreads in the current low interest rate environment. They should each report back to the FPC in September 2013."

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