UK homeowners and businesses resilient to high interest rates, BoE says

LONDON, March 27 (Reuters) - British mortgage holders and businesses are generally coping well with high interest rates and problem debt levels are well below those seen after the 2008 financial crisis, the Bank of England said on Wednesday.

While the overall global environment for financial risk remained challenging - and there were concerns about specific areas such as private equity - Britain's financial system remained well protected against future shocks, the BoE said.

"So far UK borrowers have been resilient to the impact of higher interest rates," the BoE's Financial Policy Committee said in a quarterly update.

Last week the BoE kept its main interest rate at 5.25%, its highest in nearly 16 years, but said inflation was heading in the right direction for a rate cut. Financial markets on Tuesday saw a nearly two in three chance of a first quarter-point rate cut by June and a move is fully priced in by August.

The BoE said just over half of households with mortgages had seen debt payments rise since it started raising rates in December 2021. Mortgage debt service ratios were forecast to rise from 7.0% in the third quarter of 2023 to 8.4% by the end of 2026, slightly below a projection of 8.8% in December.

The proportion of households with high debt costs relative to their cost of living was seen rising marginally to 1.6% by the end of this year from 1.4%, well below the peak of 3.4% it reached after the global financial crisis.

However, the BoE noted a rising trend of mortgages with 30-year terms - which now accounted for almost half of new mortgages - and that some very low-income households were struggling with basics such as food, even if they were not in debt that posed broader financial stability risks.

Britain's economy entered a shallow recession in the second half of 2023, although more recent business surveys and data suggest it has returned to growth and will eke out a very modest expansion in 2024.

Corporate insolvencies in England and Wales in February were 17% higher than a year earlier and 50% above their level four years ago, just before the COVID-19 pandemic struck Britain.

The BoE said the weakness was concentrated among very small businesses.

"Corporates remained broadly resilient to high interest rates and weak growth," it said.

(Reporting by David Milliken and Huw Jones)

((david.milliken@thomsonreuters.com; +44 20 7513 4034))

Keywords: BRITAIN BOE/