London Daily

Focus on the big picture.
Saturday, Mar 14, 2026

Higher risk of households defaulting on loans as Bank warns of worsening financial conditions

Higher risk of households defaulting on loans as Bank warns of worsening financial conditions

The average mortgage repayment is to increase by £250 a month and to 17% of the average pre-tax income, the Bank of England said as it revealed plans for a new stress test in the wake of the September mini-budget market meltdown.
"Significant pressure" will be placed on the ability of households to meet their debts, the Bank of England has said in its latest health check of the UK's financial system.

Its Financial Stability Report, published on Tuesday morning, warned that economic conditions had deteriorated.

It also revealed plans for a stress test covering investment funds and other non-bank financial institutions next year in the wake of the September mini-budget market panic that hit investment funds crucial to the pension sector.

"The risk that indebted households will default on loans, or sharply reduce their spending, has increased," the report said.

That pressure will increase into next year, the report forecast, as inflation and higher interest rates bear down on consumers.

Contributing to difficulties for households are falling real incomes, the increased cost of mortgages and higher unemployment, the Bank said.

Four million households are to have more expensive mortgages next year and two million will have higher payments by the end of 2025, it suggested.

The average increase in mortgage payments will be £250 a month, the Bank expects.

Repayments will rise from £750 to £1,000 a month on average, rising to 17% of the average pre-tax income from the current 12%.

While it represents a large rise in income spent on mortgages, the Bank said households were better off than before the global financial crash of the late 2000s and the recession of the 1990s as a lower proportion of disposable income is spent on mortgage repayments.

Despite the financial hardship, the Bank was confident there were no widespread signs of financial difficultly for households.

It said arrears remained low and that only 20% of mortgage-holders were on variable rate mortgages, more susceptible to interest rate fluctuations.

Banks also have capacity and resilience to deal with any coming recession with sufficient capital reserves, the Bank said.

That will be the case even if economic conditions are worse than currently forecast, it added.

There's evidence, the Bank said, that the major UK lenders are tightening lending standards as their appetite for lending to riskier borrowers lessens.

Also revealed by the Bank was a forthcoming stress test of the non-bank sector of lenders.

The Bank will become the first regulator to do so despite half of global lending being done via such lenders.

Details of the stress test are not yet fully formed but officials have started a scoping exercise to identify what institutions and groups will come under the purview of the stress tests, which examine resilience of lenders to weather economic, political and environmental shocks.

It was shortly after then-chancellor Kwasi Kwarteng's mini-budget in September that the Bank had to intervene to prop up liability-driven investment funds, used by pension funds to ensure their long-term payouts, as they struggled to meet collateral calls as bond prices tumbled.

Stress testing of banks in the UK began in 2013 in the wake of the global financial crisis.

The rate of inflation is tipped to ease from its current 41-year high of 11.1% on Wednesday when the Office for National Statistics releases figures covering November.

Nevertheless, the Bank rate is forecast to rise from its current level of 3% to 3.5% in a further bid to bear down on rising cost pressures in the economy, including from wage growth.
Newsletter

Related Articles

0:00
0:00
Close
Middle East War Highlights Strategic Importance of Strong UK–Ireland Cooperation
Weak Growth Signals UK Economy Was Faltering Even Before Middle East Energy Shock
Marks & Spencer Tops UK Fashion Retail Rankings as Most Considered Brand
United States Launches Trade Investigation Into Allies Over Forced Labour Practices
United States Launches Trade Investigation Into Allies Over Forced Labour Practices
Russia Accuses Britain Over Storm Shadow Strike as London Reaffirms Ukraine’s Right to Self-Defence
Russia Accuses Britain Over Storm Shadow Strike as London Reaffirms Ukraine’s Right to Self-Defence
Royal Navy to Acquire Twenty Uncrewed Surface Vessels for Autonomous Warfare Testing
Russia Summons British and French Envoys After Ukrainian Storm Shadow Strike on Strategic Facility
Starmer Confirms Britain Will Maintain Sanctions on Russia Despite U.S. Policy Shift
UK Moves to Refine AI Definition in Investment Security Reform
UK Economy Stalls in January as Growth Unexpectedly Falls to Zero
Asian Energy Security Tested as Strait of Hormuz Disruption Threatens Oil Supplies
Iran Sets Three Conditions for Ending Regional War as Diplomatic Efforts Intensify
Tesla Secures Approval to Supply Electricity Directly to Homes Across Britain
Prince William Delivers Tribute to Australia’s Naval Alliance Amid Renewed Royal Spotlight on the Country
UK Foreign Secretary Travels to Saudi Arabia to Reinforce Support for Regional Allies
Putin’s ‘Hidden Hand’ May Be Assisting Iran in Conflict With Trump, UK Defence Secretary Warns
UK Sets April Deadline for Tech Platforms to Strengthen Online Protections for Children
Elon Musk Moves Into Britain’s Energy Market as Tesla Wins Licence to Supply Power
UK Watchdog Warns Fuel Retailers Against Profiteering Amid Iran War Price Surge
Report Claims Iran Used UK Charity Network to Expand Influence
United States and United Kingdom Establish Joint Standards for Counter-Drone Technology
Iran May Be Laying Naval Mines in Strait of Hormuz, UK Warns Amid Escalating Gulf Tensions
US Deploys Bunker-Buster Bombs to UK Airbase as Iran Conflict Intensifies
British Troops in Iraq Intercept Iranian Drones Targeting Coalition Base
Release of Mandelson Files Raises Tensions as UK Seeks Stable Relations With Donald Trump
UK Documents Reveal Starmer Was Warned About Mandelson’s Epstein Links Before Ambassador Appointment
Nearly Five Hundred UK Mortgage Deals Withdrawn in Two Days as Market Volatility Forces Lenders to Reprice
Three Cargo Ships Hit Near Iran as Attacks Spread to Strategic Strait of Hormuz
Why British Police Repeatedly Declined to Investigate Jeffrey Epstein’s UK Links
UK Parliament Ends Hereditary Seats in House of Lords, Closing Chapter on Centuries of Aristocratic Lawmaking
EU and UK Urge Israel to Act Against Rising West Bank Settler Violence Amid Regional Tensions
US Senator John Kennedy Says Keir Starmer Should Not Be Trusted for Military Advice Amid Iran War Debate
UK High Court Rejects Attempt to Revive Terrorism Charge Against Kneecap Rapper
Revolut Secures Full UK Banking Licence After Multi-Year Regulatory Wait
Kentucky’s Bench Boost Powers Wildcats Past LSU in SEC Tournament Opener
British Couple Die After Being Pulled From Water at Australian Beach During Family Visit
Global Energy Agency Announces Record Release of 400 Million Barrels to Stabilize Oil Markets Amid Hormuz Disruption
British Airways Suspends UK Repatriation Flights as Middle East Travel Disruption Deepens
US Forces Prepare Ordnance at RAF Fairford as Strategic Bombers Deploy for Middle East Operations
Nigel Farage Faces Criticism After Saying Britain Should Stay Out of Iran War
Landmark UK Trial Begins Over Sony’s PlayStation Store Pricing
UK High Court Rejects Bid to Challenge Britain’s Chagos Islands Agreement With Mauritius
Finnish Duo Triumphs in England’s Annual Wife-Carrying Race, Winning a Barrel of Ale
How U.S. and UK National Security Strategies Are Reshaping the Global Business Landscape
Green Party Gains Momentum as Labour Shifts Toward the Political Centre
Royal Navy Destroyer HMS Dragon Sets Sail for Eastern Mediterranean as Regional Tensions Rise
UK Homebuilder Persimmon Warns Iran Conflict Could Dent Property Buyer Confidence
Roman Abramovich Signals Legal Fight if UK Seeks to Seize Chelsea Sale Funds
×