Mortgage holders ‘coping with high rates’

Mortgage holders and businesses are generally coping well with high interest rates, while problem debt levels are well below those after the 2008 financial crisis, the Bank of England has said.

The overall global environment for financial risk remained challenging – it has concerns about specific areas such as private equity – but the UK’s financial system remained well protected against future shocks, it said.

Just over half of households with mortgages had their debt payments rise since the Bank began raising rates in December 2021.

Mortgage debt service ratios were forecast to rise from 7 per cent in the third quarter of 2023 to 8.4 per cent by the end of 2026, slightly below a projection of 8.8 per cent in December.

The proportion of households with high debt costs relative to their cost of living was rising marginally to 1.6 per cent by the end of this year from 1.4 per cent, well below the peak of 3.4 per cent reached after the global financial crisis in 2007.

The Bank noted a rising trend of 30-year mortgages, now accounting for almost half of new mortgages, and that some very low-income households, even if not in debt, were struggling with basics, such as food, which posed broader financial stability risks.

Corporate insolvencies in England and Wales in February were 17 per cent higher than a year earlier and 50 per cent over four years ago.