Households who spend “a high proportion” of their incomes on mortgage payments are expected to “increase slightly over the next two years”, warns to the Bank of England.  

“Many UK households, including renters, remain under pressure from higher living costs and higher interest rates,” according to the central bank’s June financial stability from its Financial Policy Committee. 

The base rate has remained at a 16-year high of 5.25% since last August. The last time the central bank cut rates was in March 2020.    

However, the report forecasts that home loan debt “is likely to remain well below pre-global financial crisis levels. Mortgage arrears remain low by historical standards and are expected to remain well below their previous peaks.”  

Households are “resilient although many remain under pressure,” the study adds, “in the context of strong nominal household income growth and continued low unemployment, [while] the aggregate UK household debt to income ratio has continued to fall.” 

Lenders remain “well capitalised,” the report points out.  

It says: “The UK banking system has the capacity to support households and businesses, even if economic and financial conditions were to be substantially worse than expected.  

“The UK banking system is well capitalised and UK banks maintain strong liquidity positions.”   

KPMG global and UK head of financial services Karim Haji says: “While there are signs that a brighter economic outlook is starting to feed through to resilient consumers and businesses, the Bank of England’s report shows high borrowing costs still pose a threat to the stability of the financial system.  

“The good news is UK banks are in rude health, with strong capital and liquidity positions allowing them to support people even if the economy does worse than expected. It is incumbent on them to continue supporting vulnerable customers.”