UK household debt problem may be overdone - BoE
Friday, December 17, 2004 12:16:29 AM
afxpress.com
LONDON (AFX) - Concerns about the level of household debt in the UK may have been overdone, the Bank of England said today
In research in its quarterly economic bulletin, the central bank said overall household debt appears to be affordable even though it stands at over 1 trln stg
"While circumstances can change suddenly, the survey evidence suggests that, by the standards of the past decade, relatively few households are close to a stressed position," it said
"This partly reflects buoyant house price inflation in recent years, but also appears to be due to fewer households borrowing at very high loan to value ratios," it added
The picture though is not uniform across households, the Bank said, with people living in rented properties more likely to have bigger debt problems than homeowners, despite the recent rises in the cost of borrowing. Homeowners appear to be having few difficulties in servicing their debt even though the central bank has raised its key repo rate to 4.75 pct from 3.50 pct in November 2003, the Bank said
"This may be because the background economic conditions of low interest rates and a strong labour market, together with a buoyant housing market, have been favourable to them," the bank said
In addition, it noted that homeowners who might otherwise have experienced some debt-related problems have probably been able to take advantage of the equity in their homes and interest-free borrowing on some unsecured debts, like credit cards, to ease what could have been pressing financial difficulties
"At present, the proportion of people with limited housing equity who are also devoting a high proportion of their income to servicing their debts is low compared with the mid-1990s," it said
"This is consistent with the very low level of mortgage arrears," it added
The research may help ease concerns that consumption growth will stall in the wake of higher borrowing costs and a slowing housing market
One of the reasons the BoE has not raised interest rates since August relates to concerns over the outlook for consumption, which kept the economy out of recession over the last couple of years
Though homeowners seem to be coping pretty well, the central bank found that a somewhat higher proportion of renters are borrowing money than was the case a decade ago
Though the the proportion of renters having problems with their debt has not increased, the Bank found that the amount borrowed by those in difficulty is higher than in the past
In addition, it found that renters who borrow unsecured are more likely to have problems than homeowners, partly because they do not have the "safety valve" of housing equity to relieve pressures
forexstreet.com |
