the bank of englands latest assessment of financial stability found that uk major banks could withstand a sharp economic downturn but highlighted risks stemming from the realestate sector and leverage the eight uk banks passed the boe’s stress tests sending their shares up in london trading lloyds banking group rose 28 while virgin money rallied 76 hsbc barclays and standard chartered gained between 1 and 2 banks can weather an deep hit the boe’s tests looked at what would happen to bank balance sheets in an extreme scenario—in this case if inflation soared to 17 the unemployment rate more than doubled and commercialproperty values fell by nearly half they found that banks highestquality capital ratio core equity tier 1 would fall but remain far above the minimum requirement households will feel mortgage strain rising interest rates mean that by the end of 2026 roughly 1 million households will see monthly mortgage payments rise by £500 a month or about 7760 a year the boe model assumes borrowers refinance at the same maturity the £1 trillion commercial realestate question uk commercial realestate prices have fallen by 20 in the past year according to the boe uk banks arent as exposed as they once were to the sector accounting for about 30 of the sector’s outstanding debt compared with 60 in 2008 foreign investors have become a major force in the uk realestate market and could prove highly sensitive to market stress the boe warned if they pull out it could ripple through to realestate funds and other investors leverage looms large leverage was a repeated theme in the boes report leveraged loans extended to risky borrowers at floating rates are a particular concern as signs of stress could drive fire sales on the part of nonbank financial institutions the boe also flagged a bet popular among leveraged hedge funds on us treasury futures as a risk to broader stability a sharp move in that market could force funds to rush to cover those bets risking a broader ripple effect in markets