UK mortgage market remains robust according to BoE


According to the Bank of England (BoE), the share of households with high cost-of-living-adjusted debt-service ratios on their mortgages has remained well below pre-Global Financial Crisis peaks in recent years. years.

The BoE’s Financial Stability Report found that in the first quarter, the share of households with high cost-of-living-adjusted DSRs for mortgage debt was 1.7%, down from 1.4% in the first quarter. 2020.

The report notes that these numbers are “around the historical average for the series” and “significantly below” the 2.8% peak before the global financial crisis.

According to the FPC, this reflects its recommendations on the mortgage market, which have “protected against a significant relaxation of underwriting standards and an excessive accumulation of household debt”.

The trends in the two net measures are also reflected in the gross pre-tax income-based DSR measures reported in previous Financial Stability Reports, the BoE noted.

The shares of households with high cost-of-living-adjusted DSRs on their mortgages are expected to remain around their current levels through this year.

Meanwhile, the report found that the impact of higher interest rates on mortgage DSRs is less than in the past, as a growing share of mortgage debt is fixed rate.

In the first quarter of this year, 80% of the outstanding value of residential mortgages was fixed rate, compared to 55% five years ago.

However, the BoE said the share of households with high cost-of-living-adjusted DSRs for mortgage debt is expected to rise in 2023, but remain significantly below peaks seen before the global financial crisis.

He said: “Market expectations are that interest rates will continue to rise and more of the increases will be passed on to households with mortgages as they come to the end of fixed rate periods. “

Elsewhere, the report suggests that the quality of assets reported by banks has remained “broadly stable, but is expected to deteriorate over the coming quarters”.

The report found that the share of non-performing loans remained broadly unchanged in the first quarter for mortgages, consumer credit and businesses.

While credit performance has been strong, she noted there are signs it is set to deteriorate somewhat in the months ahead.

Major UK banks recorded a small impairment charge of £1.0 billion in total in the first quarter, following four consecutive quarters of write-backs.

The report explains that the impairment charge reflects both higher modeled losses, as well as judgment-based adjustments applied by banks to reflect the current economic outlook.

Last year, banks began publishing Covid-related adjustments as the economic outlook improved.

However, the report says that while banks continue to issue Covid-related adjustments, they have started making further adjustments to reflect deterioration and considerable uncertainty in the economic outlook.

The report notes: “This includes the indirect effects of the Russian invasion of Ukraine, the rising cost of living in the UK and the potential fallout from the Chinese economy.”

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