'Significant' threat emerges of sharp rise in interest rates, warns Bank of England
Increase would affect debt-laden households, banks and finance firms
Wednesday 26 June 2013
The Bank of England has warned over the "significant" threat from a sharp rise in interest rates to debt-laden households, banks and finance firms.
In its quarterly financial stability report, it called for City regulators to assess how vulnerable borrowers and financial institutions will be to a sharp rates rise and report back in September.
The Bank warned that borrowers would face "significant distress" and "risks could crystalise" if global long-term interest rates were to rise from their current historic lows.
UK borrowers currently benefit from the lowest interest rates on record, with the Bank's base rate stuck at 0.5 per cent since 2009, whilst other central banks around the world have also pushed rates to record lows.
This has allowed cash-strapped households to keep on top of mortgage repayments, despite a fall in real incomes, with lenders also relaxing debt demands through forbearance.
The Bank said: "The significant cohorts of UK borrowers could experience financial difficulties if interest rates were to rise during a period of subdued income growth.
"A rise in interest rates without a strengthening in income could significantly increase borrower distress and losses to banks."
It added that UK household debt remains high as a proportion of income at around 140 per cent, with UK bank lending to households and non-financial firms at around £1.4 trillion.
Around 9 per cent of UK mortgage holders will have to take action - such as working longer hours, cutting back on essentials and changing mortgage - if rates were to rise by just one percentage point, it said.
Sir Mervyn King warned in his last public appearance as governor yesterday that many homeowners in their thirties and forties would not survive if interest rates returned to normal.
He said: "I think the idea we are about to return to normal levels of interest rates is premature, and one of the reasons we are not about to return is precisely because so many households have such a high level of household debt."
A rise in rates could hike bad debt losses at banks, the Bank said today, as well as increase their funding costs.
- 1 Barbarians vs Samoa interrupted by sprinklers as fans criticise lack of Wi-Fi and poor seating at West Ham's Olympic Stadium
- 2 Watch the Supermoon live: How to see the brightest Moon of the year tonight
- 3 Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
- 4 Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
- 5 David De Gea to Real Madrid: Real finally get their man with £29m bid for Manchester United goalkeeper
Caitlyn Jenner car crash: Driver who died in collision sued by surviving passengers for $18.5m
Watch the Supermoon live: How to see the brightest Moon of the year tonight
Hulk Hogan wants to be Donald Trump's running mate in the US Presidential election
Blood Moon and Supermoon: September to bring brightest – and dimmest – full Moon of the year on same night
Turkey duped the US, and Isis reaps rewards
Climate change: 2015 will be the hottest year on record 'by a mile', experts say
'Women only' train carriages: Jeremy Corbyn unveils radical move to tackle public harassment
Black holes are a passage to another universe, says Stephen Hawking
Iain Duncan Smith 'should resign over disability benefit death figures', says Jeremy Corbyn
Tony Blair attacks Jeremy Corbyn's 'Alice In Wonderland' politics
Theresa May says migrants should be banned from entering the UK unless they have jobs lined up
iJobs Money & Business
£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...
£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...
£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...
£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...