U.K. Borrowers Can Shoulder Rate Hikes, BOE Staff Research Finds
(Bloomberg) -- U.K. household debt isn’t at dangerous levels despite being high relative to income, according to research by Bank of England economists.
Modelling relationships between debt, house prices and real interest rates showed no single threshold at which borrowing suddenly becomes unfeasible, Lewis Kirkham and Stephen Burgess wrote in a BOE staff blog. However, they found that it should be “broadly sustainable” under any rise in real rates of up to about 2 percentage points from current levels.
“Over the past 30 years, falling real interest rates have allowed U.K. households to take on more debt, and that larger stock of debt looks as though it should be sustainable, provided real rates do not rise by too much. But since interest rates are unlikely to remain as low as they are now indefinitely, we can only assess debt sustainability properly by making a judgement about their future path, which is challenging.”
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