The proportion of households struggling to make their mortgage payments is expected to increase to its pre-financial crisis peak by the end of next year, the Bank of England has warned. The Bank’s Financial Policy Committee (FPC) said households with high cost of living-adjusted mortgage debt-servicing ratios will soar if interest rates increase in line with what the market expects.
The category measures those who spend more than 70% of their take-home pay on mortgages and other essentials. These households will struggle to meet their payments and will have to cut spending, and could default on their loans.
The Bank said: "Assuming rates follow this market-implied path, the share of households with high cost of living-adjusted mortgage debt-servicing ratios would increase by end-2023 to around the peak levels reached ahead of the global financial crisis (GFC). However, households are in a stronger position than in the run-up to the GFC, so UK banks are less exposed to household vulnerabilities.”
