Bank of England warns of tough times ahead but says banks are ready to help

The Bank of England (BoE) has warned that the number of homeowners struggling with their mortgage payments is set to rise over the next two years. This comes as no surprise, as many households are already grappling with the soaring cost of living and relentless interest rate hikes.

The report, released by the BoE’s Financial Policy Committee, highlights that while mortgage debt is expected to remain below pre-2008 financial crisis levels, the pressure on homeowners is undeniable. The base rate, which dictates the interest rates charged on loans, has been stuck at a 16-year high of 5.25% since August last year. The last time it was lowered was way back in March 2020.

Despite the gloomy outlook, the BoE assures us that British households are resilient. Factors like strong income growth and low unemployment rates are helping to cushion the blow. Plus, the overall household debt, compared to income, has been steadily decreasing.

Importantly, the BoE emphasises that UK banks are well-prepared to handle any financial storms that may come our way. They are said to have strong capital reserves and plenty of cash on hand to support both households and businesses, even if the economy takes a turn for the worse.

Karim Haji, a financial expert at KPMG, acknowledges the challenges ahead but remains optimistic: “While high borrowing costs remain a concern, there are positive signs emerging. The economy is looking brighter, and both consumers and businesses are proving their resilience.”

Haji also praises the UK banking system, stating: “UK banks are in great shape, with strong capital and liquidity positions that allow them to support people even if the economic situation worsens. It is crucial for them to continue providing assistance to vulnerable customers.”