The share of households with high cost of living adjusted debt-servicing ratios (DSRs) on their mortgage has remained significantly below pre-global financial crisis peaks over the past few years, according to the Bank of England (BoE).

The BoE’s Financial Stability Report found that in the first quarter, the share of households with high cost of living adjusted DSRs for mortgage debt was 1.7% up from 1.4% in Q1 2020.

The report noted that these figures are “around the historical average for the series”, and “significantly below” the pre-global financial crisis peak of 2.8%.

According to the FPC’s, this reflects its mortgage market recommendations, which have “guarded against a material loosening in underwriting standards and an excessive build-up of household debt”.

Trends in both net measures are also mirrored in the gross DSR measures based on gross, pre-tax income referred to in previous Financial Stability Reports, the BoE noted.

The shares of households with high cost of living adjusted DSRs on their mortgages are likely to remain at around their current levels over the course of this year.

Meanwhile, the report found that the impact of higher interest rates on mortgage DSRs is less than in the past because an increasing share of mortgage debt is at fixed rates.

As of the first quarter this year, 80% of the outstanding value of residential mortgages was at a fixed rate, compared to five years ago when it stood at 55%.

However, the BoE said the shares of households with high cost of living adjusted DSRs for mortgage debt are expected to increase in 2023 but would remain significantly below the peaks seen ahead of the global financial crisis.

It said: “Market expectations are for interest rates to continue to rise and more of the increases will be passed through to households with mortgages as they come to the end of fixed-rate periods.”

Elsewhere, the report suggested that asset quality reported by banks has remained “broadly stable, but is likely to deteriorate in coming quarters”.

The report found that the share of non-performing loans remained broadly unchanged in Q1 for mortgages, consumer credit, and corporates.

While credit performance has been strong, it noted that there are signs that this is likely to deteriorate somewhat in coming months.

Major UK banks registered a small impairment charge of £1.0bn in aggregate in Q1, following four consecutive quarters of impairment releases.

The report explained that the impairment charge reflects both higher modelled losses, as well as judgement-based adjustments applied by banks to reflect the current economic outlook.

Last year, banks started to release Covid-related adjustments as the economic outlook improved.

However, the report said that while banks continue to release Covid-related adjustments, they have started to make further adjustments to reflect a deterioration and considerable uncertainty in the economic outlook.

The report noted: “This includes indirect effects from the Russian invasion of Ukraine, the rising cost of living in the UK, and potential spillovers from the Chinese economy.”