BoE’s Brazier: credit risks ‘stirring’ beneath calm surface

Credit risks in the UK are showing some signs of “stirring”, despite aggregate indicators largely showing calm conditions, the Bank of England’s Alex Brazier said on April 19.

Overall mortgage debt has grown only “modestly” for the past 18 months, the executive director told an audience at Imperial College Business School. But a decline in borrowing among buy-to-let investors has masked riskier mortgages flowing to owner-occupiers.

Rates have fallen, lenders are willing to take on more risk, and loan-to-income ratios are beginning to rise, Brazier said.

However, he stressed the BoE’s measures implemented in 2014 for the “stress testing” of mortgage borrowers are working. New mortgage lending is limited to 4.5 times a borrower’s salary, and they must be able to withstand a rate hike of three percentage points without defaulting.

“So there is no flashing warning light here telling us to pull over urgently,” he said. “There is, perhaps, the light that reminds us the car is due for a service.” Policymakers will reconsider whether current capital requirements are adequate when they meet in June, he added.