The Bank of England has warned high street banks that they could be taking too many risks when selling mortgages and commercial loans.
To qualify for a loan a business or individual must meet affordability rules designed to check whether borrowers can afford to repay loans. The Bank of England says that banks have been issuing too many mortgages and other loans at or near the affordability threshold. If an individual or a business applying for a residential or commercial mortgage can only just afford to repay the loan, a small decrease in the borrower’s income can mean that they may no longer be able to keep up with the mortgage payments.
The major banks, Barclays, HSBC, RBS, Lloyds, Santander, Standard Chartered and Nationwide, all have an annual check-up that is designed to spot any signs that the banks could be heading for a new financial crisis. Last year new accounting measures were introduced to prevent banks issuing loans that could turn “sour”. The next check-up is due towards the end of 2018 and will enable the authorities to see if the accounting rules are effective.
Smaller alternative banks are not covered by the Bank of England’s warning, but most are careful to make sure that borrowers can afford to repay loans including commercial mortgages and bridging loans. The Building Societies Association reported that, in the last quarter of 2017, 0.94% of mortgages were in arrears. This small percentage shows that affordability management procedures are mainly working.