MORTAGE lenders’ appetite for risk appears to have increased with loans being offered on high multiples of incomes, the Bank of England has noted.
The bank’s Financial Policy Committee said it had noted some signs of rising domestic risk appetite in recent quarters, with valuations in some segments of the UK commercial real estate sector appearing stretched.
“In the mortgage market, the proportion of new owner-occupier mortgages at high loan-to-income ratios, including just below 4.5 … has increased,” said the committee following its latest review of the outlook for financial stability.
The Bank of England imposed limits on the share of mortgages that could be offered at 4.5 times income on the recommendation of the committee. Its members include Bank of England Governor Mark Carney.
The limits are intended to help avoid a repeat of the problems seen before the financial crisis of 2008, when interest rate rises posed big challenges for people with loans on high income multiples.
The committee said the United Kingdom’s current account deficit remains large by international standards. The country has become increasingly reliant on the confidence of foreign investors.
It noted: “The FPC continues to judge that, apart from those related to Brexit, domestic risks remain standard overall.” Risks from global vulnerabilities remain material.
The committee said progress has been made towards mitigating risks of disruption to financial services following Brexit. Risks remain in areas such as cross border derivatives contracts.
The FPC reckons the UK banking system could continue to support the real economy through a disorderly Brexit.
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