Bank stress tests to focus on housing market

Houses for sale Image copyright PA
Image caption House prices have risen by about 10% over the past 12 months

The Bank of England will test whether lenders can withstand a shock in the property market, after it found buyers were spending a higher proportion of their incomes on mortgages than at any time since 2005.

The bank's Financial Policy Committee (FPC) said on Thursday it would be "vigilant to emerging vulnerabilities".

It will also assess the risk posed by a sharp rise in interest rates.

In the past year, house prices in the UK rose by about 10%.

The bank will conduct the tests on lenders as part of a European Union-wide test this year.

The FPC, which has responsibility to monitor the strength of the financial system, said it would "continue to monitor conditions closely, and will take further proportionate and graduated actions if warranted".

It added: "A key part of the scenario would examine the resilience of the banks to a housing market shock and a snap back in interest rates."

The FPC's comments were made in a report on its latest quarterly meeting. The body also said it hoped to have the power from June to set interest rate scenarios, which lenders would have to consider before granting a loan.

The scenarios are being developed in conjunction with the Financial Conduct Authority (FCA), which has a key role in protecting consumers.

From next month the FCA will oversee tougher home loan underwriting standards.

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