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Bank of England: 'Modest' deterioration in UK household debt position

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Bank of England: 'Modest' deterioration in UK household debt position

British households have seen a "modest" deterioration in their balance sheets over the past year, as a trend for improvement since the financial crisis grinds to a halt, according to the Bank of England.

The share of households with a mortgage debt servicing ratio of over 40% of pretax income — a threshold associated with a greater likelihood of struggling to repay — has risen over the course of 2017, although it remains low by historical levels, according to a survey carried out by the Bank of England with NMG Consulting, a research firm.

The percentage of households with a high debt servicing ratio had been slowly falling since the global financial crisis, sinking below 1% in 2015, but the latest survey, with the number approaching 1.5%, suggests that this improvement might be coming to an end.

The Bank of England has warned on several occasions in 2017 that levels of personal debt in the U.K. are climbing to unsustainable levels, with car loans and credit card debt a particular concern.

Most households should be able to take November's 25-basis-point increase in the interest rate to 0.25% in their stride, and only 2.5% of households with a mortgage will need to take action to find extra money as a result of the rise, according to the study. If the interest rate had increased by 50 basis points rather than 25, this figure would have been 7.5%.

However, 38% of respondents to the survey were on a floating rate mortgage, while a further 5% were on a fixed-rate mortgage due to expire in 2017, which suggests that 43% will see an increase in interest payments at the beginning of 2017, according to the survey. This will rise to 62% by the beginning of 2019.

"These proportions are similar to the levels reported in 2014 and 2016, and are low as a percentage of all households," the report said.

Households may respond to higher mortgage payments by cutting their spending or working longer hours, according to the report.

The survey is based on responses from 6,018 households gathered in September.

The proportion of households pessimistic about the impact of Brexit on the British economy has risen since the second half of 2016, the survey showed.