The results of both stress-testing exercises, notwithstanding some important caveats, suggest that the banking sector’s shock absorption capacity is strong. House prices and private sector indebtedness I would like to comment a little more on two vulnerabilities of the financial system. Residential house prices Following the publication of last year’s Report a reacceleration emerged in annual house price increases.
In more recent months, however, there have been tentative signs of a re-emergence, from both housing indicators and anecdotal evidence, of some easing of price pressures. If these signs were to be confirmed and to continue into 2007, the vulnerability posed by house prices would be reduced somewhat.