The governor of the Bank of England, Andrew Bailey, said he hopes to see the cost of mortgages continue to fall.
Members of the central bank were grilled by Treasury committee MPs on Wednesday afternoon (January 12).
MP Keir Mather asked whether financial stability could be compromised by people not being able to keep up with mortgage repayments.
Mather said: “I know in my own constituency just how difficult people are finding it.
“Your average owner-occupied mortgager, if they took it out from Q2 2023 through to 2026, is likely to face increases of £240 a month. I question how sustainable that can be.
“How confident are you that there won't be any serious financial repercussions for financial stability in the context of increases in household interest payments over the course of this year?”
Bailey said arrears rates were now lower than in the past and repossessions were rare.
He said: “Obviously we've had quite a big change in market interest rates over the last few months and so the cost of mortgages is coming down.
While he would not address what it means for monetary policy, he added: “Let's just take the market for a moment. I mean, obviously that is feeding into mortgage costs and I hope that is something that continues.”
Earlier this week, brokers said the mortgage market may see “sub 3 per cent rates” by the end of the year.
This came after a number of recent rate reductions from a number of different lenders, including HSBC which became the first major lender to offer sub 4 per cent rates.
Later in the week (January 10), one broker claimed that “the January mortgage fire sale is firmly underway” after major lenders Barclays and Santander also announced rate reductions.
Unemployment
Elsewhere in the course of questioning, Bailey touched on unemployment rates not increasing significantly, which are historically a driver of people not being able to pay mortgages.
He said: “We have not seen a pronounced increase in unemployment, that's relevant because historically one of the drivers of loan losses, particularly in the mortgage market, is unemployment.
“[And secondly], certainly last year we saw an increase, about a 2 per cent increase, in household real incomes.
“Both of those things support overall conditions and financial stability.”
Elsewhere in the session, as reported by FT Adviser yesterday (January 10), Jonathan Hall, external member of the Bank of England’s Financial Policy Committee, said a calmer market would see people taking more risks, affecting financial stability.
He said: “Although interest rates are expected to remain high, expected volatility has come down and so we should expect to see less risk of financial instability in the markets.
“What that could mean, if conditions seem calm and volatility is low, is then you could get a risk of exuberance.
“So people take on more risk because they think the market is more benign.”
