BoE: Mortgage costs relative to income remains low

Michael Lloyd

December 20, 2019

household finances during pandemic

The proportion of households that spend a large share of income on servicing debt has remained low, The Bank of England has revealed.

‘The financial position of British households: evidence from the 2019 NMG Consulting survey’ also showed the proportion of households with high mortgage debt relative to income has risen slightly.

The amount of savings held by mortgage borrowers with large mortgages has risen in recent years, potentially enabling them to better smooth through future shocks.

Bob Pannell, independent economist consultant, said: “Some of these are well-documented trends.

“It has been the case for some years that there’s been relatively few households deemed to have relatively high debt positions relative to their incomes.

“The percentage who are in that elevated position and who have very high mortgage debt service costs from their incomes has been consistently low for a number of years.

“That’s a well-established pattern and some of that reflects a number of issues.”

Pannell explained these issues and said there are a lot of reasons why prudent mortgage lending has been reinforced.

He added: “From 2014 we’ve had MMR and financial policy committee housing measures.

“All of that has reinforced more stringent underwriting criteria.

“We’ve had a general presumption most mortgage lending would be subject to advice.

“And we’ve gone through a relatively begin period with relatively few shocks over the past few years.

“We’ve had a very favourable jobs market and strong employment growth and in very recent times in the past year a strong recovery in real incomes and because of the underlying environment.

“Being one in which interest rates have been going down, and with competition from lenders, pushing mortgage costs down, most households would have seen stable or improving income conditions and lower mortgage costs.

“All of this has been lowering mortgage costs in relative to income and giving almost perfect conditions for very limited high debt service costs.”

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