Worse financial pain is to come, as many people have not yet felt the full impact of the increased cost of borrowing, the Bank of England has said in one of its latest health checks of the UK’s financial system.

Higher interest rates, currently at 5.25% after a run of 14 hikes, have not yet been passed on to all borrowers, the Bank said in its quarterly Financial Policy Summary, published on Tuesday morning.

Households have been spending more of their money on paying off debt (such as credit card bills or mortgages) and the proportion of household income going on those payments is to rise through next year, the report said.

The Bank noted that the amount of debt owed by consumers is below the peak that occurred in 2007 and interest rates would need to rise significantly for that high to be reached again.

But some effects of high interest rates have already been seen in the mortgage market: the number of people on long-term, 30-year or more mortgages has grown eight percentage points in just two years, from 4% of all mortgages in 2021 to 12% this year.

Please use Chrome browser for a more accessible video player

As a result of more expensive mortgage bills there’s been a “modest” increase in the number of people in arrears, though figures are still “low in historical terms”, the Bank said.

Only a “small number” have moved to only pay the interest on their mortgages, figures showed.

Battle over taxes: Will Jeremy Hunt be able to end Tory gloom at ‘the survival conference’?

Chancellor Jeremy Hunt sets out stall to halt ‘vicious circle’ of tax hikes as pressure mounts

GDP: UK overtakes France and Germany as economic growth bigger than expected after COVID

Be the first to get Breaking News

Install the Sky News app for free

The Bank has evidence that poorer people are turning to credit cards to make ends meet and fund day-to-day expenditure.

This group of people are more likely to be renters, as they have less money, and are less likely to be mortgage holders.

Renters, who make up the majority of the UK population according to Sky News analysis, are continuing to see their rents rise at fairly high levels.

Despite the tough economic conditions for many, the report said the UK banking system remains able to support households and businesses even if conditions are worse than expected.

As part of this, the report said the system is resilient to geopolitical risks, regardless of the form of the risk. As the result, the Bank sees the ongoing Israel-Hamas conflict as not having a significant impact on the overall financial wellbeing of the country.

Related posts:

Ex-Aviva CEO Wilson to run new insurance venture Abacai When outdoor areas reopen, which parts of the country are more likely to be serving pints? Winter holiday bookings slow thanks to travel ‘speculation’ says Jet 2 Johnson pledges legal help to woo electric vehicle giant Rivian to Britain Bitcoin slides to five-month low amid wider sell-off King dethroned as Thai group Minor wins £60m battle for The Wolseley Chelsea FC sale: Dividend ban and debt limits feature in ‘anti-Glazer’ takeover deal There is a clear need for action on the cost of living crisis Drivers at 12 rail companies target Tory conference through fresh strikes Mike Ashley gives Frasers Group £100m funding as board exit nears Holland & Barrett owner LetterOne proposes £890m debt deal with lenders FTSE 100 gambling giant Flutter places bet on next chairman