Mark Carney, the governor of the Bank of England, has issued a warning about the current high levels of debt in households across the UK. In the main he said that consumers were borrowing more on unsecured debt including their credit cards.
In the last month credit card lending was up on the last month by £571m, a level not seen in recent times. The overall unsecured debt, including loans and overdrafts, is rising at a faster pace.
At the Bank he told a press conference "We are going to remain vigilant around the issue, because we have seen this shift."
The ratio of household debt to income was sitting at 133% in the second quarter of 2016 according to the Bank’s stability report. This they said was high, but not as high as it was during the financial crisis.
This has created an uncertain housing market and for this reason the rules on risky mortgage lending would remain unchanged – lenders were told in June 2014 that they could not lend anymore than 15% of their loan book to anyone borrowing more than 4.5x their annual income. Lenders also have to carry out an affordability test to anyone wanting to take out a mortgage. Part of this includes whether home owners would still be able to afford mortgage payments if interest rates rose by 3% during the first 5 years of the loan.
Because house prices are currently, on average, 4.5 times that of the average income Mr. Carney said the outlook for the housing market was “highly uncertain”.
Posted: 01/12/2016
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