Bank of England issues warning about high-risk loans

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The Bank of England has cautioned high street banks about issuing high-risk mortgages and commercial loans. The warning was part of its latest health check on the banking system.

All residential and commercial mortgage applications are subject to affordability rules designed to ensure that borrowers can afford to repay the loans. Some business and personal customers only just meet these affordability rules, which makes them at higher risk of defaulting on payments.

Although the cost of borrowing is lower than it was a few years ago, the Bank of England has begun to raise interest rates. More rate rises could be implemented by the Bank of England in 2018. For borrowers just within the affordability rules, further interest rate rises could make it difficult for them to continue repaying mortgage payments.

The Bank of England’s findings are mainly concerned with major banks such as Barclays, HSBC, RBS, and Lloyds. Smaller alternate lenders can also make sure that they do not have too many high risks loans.

Another danger is from Brexit. The Bank of England is taking measures to lessen risks from what they term a “disorderly” Brexit but admit that material risks will remain.

The Bank is looking at acting on the risks posed by bitcoin and other cryptocurrencies which Mark Carney, the Bank’s governor described as “inherently risky”. Most banks and other alternative lenders do not accept bitcoins for loan repayments and it is doubtful whether they will in the future.

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