By Gareth Anderson of the Bank’s Monetary Assessment and Strategy Division, Philip Bunn and Alice Pugh of the Bank’s Structural Economic Analysis Division and Arzu Uluc of the Bank’s Macro Financial Risk Division.
This annual article on the latest survey of households carried out by NMG Consulting on behalf of the Bank focuses on the potential impact of higher interest rates. If interest rates were to rise by two percentage points, while over the same period incomes rose by 10%, then the proportion of households with a high mortgage debt servicing ratio would rise from 1.3% to 1.8%. However, this remains well below previous peaks for this metric. Overall, the evidence does not suggest that gradual increases in interest rates from their current historically low levels would have unusually large effects on household spending.
The potential impact of higher interest rates on the household sector: evidence from the 2014 NMG Consulting survey