LONDON: The Bank of England will consider steps to safeguard financial stability if household debt grows faster than the rest of the economy, the bank policymaker in charge of financial stability said on Tuesday.
British household debt, measured as a share of income, has fallen substantially from its peak during the financial crisis and has now stabilised around levels last seen in 2004.
Deputy Governor Jon Cunliffe said he did not want a return to the situation before the financial crisis, when credit grew twice as fast as the economy as a whole.
"If credit began to grow faster than GDP, I would want to think very seriously about taking action to manage that sooner rather than later," Cunliffe said at a conference hosted by the British Property Federation.
British households' gross debt peaked at 155 percent of their annual after-tax income in 2007, then fell during the financial crisis and has held at around 135 percent since 2012.
A broader measure which includes business loans - credit as a share of GDP - peaked at 177 percent in 2009. It is now about 140 percent, a bit below average for an advanced economy.
Cunliffe said it would take several years of borrowing growing faster than wages or the economy as a whole to take debt to dangerous levels. But measures might need time to take effect, arguing in favour of acting earlier.
Any action is unlikely to take the form of raising record-low interest rates. The BoE has said higher rates would be a last resort to tackle excess bank lending; they are used to guide consumer price inflation towards its 2 percent target.
Instead, the BoE's Financial Policy Committee has a wide range of powers to require banks to curb mortgage lending and limit borrowing more generally.
In 2014, the central bank required lenders to heavily restrict high loan-to-value mortgages, and Tuesday's remarks suggest broader curbs could be needed if lending picks up.
HOUSEHOLD BORROWING PICKING UP
Despite a darkening global economic outlook, British consumer demand has been buoyed by record employment, low inflation and a moderate increase in wages.
Total lending to households rose 3.3 percent in the year to December 2015, its fastest rate since November 2008, according to BoE figures, compared with annual wage growth of 2 percent.
Unsecured consumer lending is growing at its fastest rate since February 2006, and house prices rose by around 9 percent last year on one closely watched measure.
Although unsecured borrowing only accounts for 10 to 15 percent of lending - most borrowing is for house purchases - it is most common among households already facing high debt repayments.
Cunliffe said dangerous rates of lending growth did not necessarily bring other signs of overheating.
Some of the rise in borrowing in the decade before the financial crisis had been reasonable, as long-term factors had pushed down on both interest rates and lenders' margins.
But Cunliffe said that if borrowing costs fell further now, that should not be used to justify greater borrowing. Cheaper borrowing would probably reflect worries about the global economy - which in turn would bode poorly for future household wage growth.
"It's an interesting question how much further interest rates or yields can fall - but to the extent that reflects a change in people's perception about how fast an economy can grow ... in terms of debt sustainability it is fairly neutral."
Higher outright levels of debt than a generation ago meant the economic impact of small rises in interest rates would be greater than in the past, he added.
Cunliffe also said the BoE had to be alert to the risk posed by the rapid growth of small 'buy-to-let' property investors, as surveys had shown many might sell if property prices fell, causing any decline in prices to snowball.
The government is currently considering a request from the BoE to give it similar powers over buy-to-let mortgage lending as it has over owner-occupiers' borrowing.
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