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Credit fears send bank shares lower after Bank of England lifts rates by 50bps

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A 12-storey tower in Canary Wharf has reportedly been sold for 60 per cent less than its 2017 purchase price.
A 12-storey tower in Canary Wharf has reportedly been sold for 60 per cent less than its 2017 purchase price.

Shares in the UK’s biggest banks today fell after the Bank of England raised interest rates by 50 basis points, heaping more pain onto borrowers.

The Bank’s Monetary Policy Committee reverted to a larger rate hike after inflation remained stuck at 8.7 per cent last month. It was the 13th rate hike in a row and larger than the 25 basis point rise markets had expected. 

Barclays was down nearly 2.9 per cent while Standard Chartered and HSBC were both down around 1.9 per cent at the time of reporting. Natwest and Lloyds were both down over one per cent. 

Although banks have raked in bumper profits from rising interest rates, many have raised concerns that borrowers will struggle to repay their debts with rates rising. 

Karim Haji, EMEA and UK head of financial services at KPMG, said: “To date there hasn’t been a significant increase in credit losses through impairments, and with defaults on the up, pressures on banks will only intensify if the base rate continues to rise.”

Research from the Resolution Foundation found that the 800,000 borrowers coming off a fixed-rate deal over the next year would pay on average £2,900 more a year from 2024.

So far the level of arrears and defaults has remained relatively stable. According to figures from banking industry body UK Finance, arrears picked up in the first quarter with mortgages in arrears of more than 2.5 per cent reaching 76,630. This was only two per cent increase on the previous quarter, however.

Repossessions jumped 50 per cent in the first quarter, starting from a very low base, with 750 homeowner mortgaged properties repossessed.

But with increasing pain expected, politicians have suggested a range of measures to support mortgage holders, such as extending the term of the mortgage and preventing changing rates from impacting credit scores. 

Haji said banks will be thinking about “sustainable solutions” as opposed to “short-term relief”. 

“Rate rises are a complex issue and mortgage lenders need to more focus on affordability when extending products, and will want to ensure that customers fully understand what could happen in various interest rate scenarios,” he said.