##i in the stock of borrowers today if the see levina et al ( 2019 ) for more detail on methodology. all speeches are available online at www. bankofengland. co. uk / news / speeches policies had not been in place. the results suggest that in those circumstances the tail of highly indebted households would be slightly larger than it currently is ( chart 4 ). and, were a downturn to hit, that the impact of debt on consumption would be a little larger than today. looking forward, the impact of these policies will continue to depend on how house prices and incomes evolve. if house prices and incomes grow broadly at the same rate then the distribution of indebtedness in the flow of new mortgages will not change much – and hence the impact of policies on the flow will not be large. but we will continue to see a change in the distribution of the stock of mortgages for some time yet as newer, higher lti mortgages gradually replace older, lower lti mortgages. if though, house price growth outpaces income growth in the future then the policies will have a greater impact. without the policies in place, if prices grew twice as fast as incomes – as they did over 2014 to 2016 – and activity rose to the pace we were forecasting in 2014, 40 % of new mortgages would be at more than 4. 5 times the borrower ’ s income ( chart 5 ). over time, this would lead to a significant increase in the share of households with higher debt to income. the models show that in such a case the fall in aggregate consumption in the event of an adverse shock could be up to around 20 % larger than we find with our policies in place. to be clear, such house price growth relative to earnings would not be at all unusual for the uk – over the five years leading up to the crisis, house prices grew at three times the rate of income growth and there were about 70 % more mortgage approvals per month than we have seen since 2014. and in the late 1980s, house prices again grew at well over twice the rate of earnings. all speeches are available online at www. bankofengland. co. uk / news / speeches chart 6. lti distribution of new mortgage lending ( a ) ( b ) sources : fca product sales database and bank calculations. ( a ) the product sales database includes regulated mortgages only. ( b ) lti distribution of new mortgage lending

##ebtedness in the real economy can amplify economic downturns. that in turn could also lead to larger losses for lenders than the initial downturn alone. the borrower or the lender? if there is risk in a bank lending to a borrower, should an fpc policy focus on the lender or the borrower? our approach has been that the policy should address the vulnerability as directly as possible. in principle it is most efficient and effective to act on the origin of the vulnerability. lenders and borrowers do not respond to credit cycle shocks in the same way. if the risk originates in the lenders ’ balance sheet, if lenders are not able to absorb losses in a severe but plausible stress, action should focus on reinforcing the resilience of the lenders to losses. it is possible, however, that the risk comes mainly from the borrowers ’ balance sheets, that they may continue to repay lenders but reduce other spending in the economy making the downturn and the eventual losses in the financial system worse. in that case, action to reinforce lender resilience will not address the risk or only do so ineffectively and inefficiently. all speeches are available online at www. bankofengland. co. uk / news / speeches borrower - based tools against that background, let me say a little more about the fpc ’ s housing tools and how they have operated in practice. the fpc ’ s housing tools in the five years after the financial crisis, housing market activity and house price growth was very subdued. but by 2013 both price growth and mortgage transactions began to pick up rapidly. in 2014 in the uk, house prices grew by 9 % in the year to q1 – twice as fast as incomes. 5 mortgage approvals had risen from around 50, 000 per month in june 2012 to over 70, 000 in january 2014. and, very importantly, the share of those mortgages at high loan - to - income ( lti ) ratios was rising. the aggregate debt to income ratio for uk households had fallen from its crisis peak but remained high relative to historical averages and international comparators. to be sure, we had not reached the rate of increases in house prices relative to earnings and in mortgage debt that we had seen before the crisis and in other episodes in the uk. but there was a risk that we were seeing a release of demand that had been pent up in the