High household debt is a key risk to the recovery, the Bank of
In a speech at the International Festival for Business in
Last week, the Bank's financial policy committee (FPC) laid out the first limits on the mortgage market in 30 years, to limit risky lending. Lenders must check that mortgage applicants can cope with a rise of three percentage points in interest rates, and from October there will be a 15% cap on the number of mortgages that banks and building societies can give to people who want to borrow more than 4.5 times their income.
Cunliffe, in charge of financial stability at the central bank, said the main risk from the housing market was that house prices would continue to grow strongly and faster than earnings and lead to more household debt.
"The stress test of the major
"The steps taken last week are insurance against the possibility of a sustained boom in the housing market leading to a substantial increase and concentration in household debt that could make a crash more likely and more severe."
His comments came after figures from Nationwide,
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