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Interest rate uncertainty poses "challenge" to stability.

Uncertainty over future interest rises and historically high levels of household debt pose "considerable challenges" to UK financial stability, the Bank of England warned today.(MONDAY)

In its twice-yearly Financial Stability Review, the Bank said: "Considerable challenges remain in an environment of firming interest rates and, for many borrowers, historically high levels of household debt."

The ratio of household debt to income has soared from less than 100pc in 1997 to around 135pc now, with mortgage lending by banks growing by 10pc a quarter and unsecured lending in the form of credit cards, loans and overdrafts by 13pc a quarter over the past year.

"The UK household sector debt-to-income ratio has continued to rise rapidly, increasing households' vulnerability to any unexpected rises in interest rates or falls in incomes," warned the Review.

And it echoed the recent warning by the Bank's Governor Mervyn King that property values may fall, stating: "Prospects for house prices are highly uncertain and, after the strength of house price inflation in recent years, the chances of a fall have risen.

"If that were to happen, housing equity would be reduced and capital gearing raised, increasing household mortgage arrears and thus raising the risk of write-offs."

The Review stressed that the UK banking system remained "well-placed" to withstand the impact of any upturn in bad debts and mortgage defaults.
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Publication:The Journal (Newcastle, England)
Date:Jun 28, 2004
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