The bank does not believe that household indebtedness poses an imminent threat to stability, BoE said in its Financial Stability Report. But it is prudent to insure against the risk of a marked loosening in underwriting standards and a further significant rise in highly indebted households.
At higher levels of indebtedness, households are more likely to encounter payment difficulties in the face of shocks to income and interest rates. This could pose direct risks to the resilience of the
Further, the FPC said mortgage lenders should apply an interest rate stress test that assess whether borrowers could still afford their mortgages if, the bank rate were to be 3% points higher than the prevailing rate during first five years of the loan.
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