In its latest Financial Stability Assessment, the Bank of England (BoE) concluded that the UK’s major banks could withstand a severe economic downturn. However, the British central bank pointed to risks emanating from the real estate sector and debt.

The eight financial houses passed the BoE’s stress tests, boosting their share price in London trading. Lloyds Banking Group was up 2.8 per cent while Virgin Money was up nearly 8 per cent. HSBC, Barclays and Standard Chartered gained between 1 and 2 percent.

Despite the positive assessment, the BoE described the environment as “challenging” and “highly uncertain”. Rising interest rates are likely to lead to increasing mortgage burdens for households, while real estate prices are falling. However, the banks are no longer as heavily involved in this market as they were a few years ago.

Leveraged loans at variable rates to risky borrowers and a bet on US Treasury futures popular with leveraged hedge funds also pose risks to stability in general, the Fed said.