Bank of England orders banks to set aside £11.4billion to cover risk of bad debt boom
The BoE warned that credit card debt, personal loans and motor finance grew much faster than household incomes
HOME buyers are facing tougher borrowing rules when they apply for a mortgage, as the Bank of England raises fears of a debt boom.
The BoE today said it will tighten affordability tests for mortgage lending.
This means banks will have to make sure their customers can meet repayments in the event that interest rates increase to around 7 per cent, or the typical Standard Variable Rates (SVR) of about 3 per cent.
It comes as the BoE in its bi-annual Financial Stability Report raised fears over rapidly growing consumer borrowing on credit cards and car finance, which is rising by more than 10 per cent a year and far outstripping the growth of incomes.
The total amount of borrowing now stands at £198bn.
Policymakers fear that a consumer lending boom could, as a result, pose a bigger risk to banks' stability.
Britain’s major lenders today were told by the BoE to find a further £11.4bn in the next 18 months to protect their finances against the risk of bad loans.
Lenders are now expected to set aside £5.7 billion in the next six months, with a further £5.7 billion to be put away by the end of 2018.
The Bank said: "Lending conditions in the mortgage market are becoming easier.
"Lenders may be placing undue weight on the recent performance of loans in benign conditions."
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