Mortgage lending is broadly flatlining but consumers are bingeing on credit cards, according to figures from the Bank of England.
Consumer lending increased at an annualised rate of 8.2% in October, the highest level since February 2006. The “other” category of loans and advances, which includes lending to buy new cars, jumped by 9.6%, the highest for 10 years.
The continued surge in spending by consumers on their credit cards or using money from ultra-cheap personal loans has prompted warnings from debt charities.
Peter Tutton, head of policy at StepChange, said: “Consumer credit continues to rise strongly with some of the biggest increases we have seen in years.
“It is vital that responsible lending standards do not relax at a time when many households are still financially vulnerable, otherwise we risk repeating the mistakes that led to the large and unsustainable credit balances we saw in the run-up to the financial crisis. The consequences of these mistakes continue to cause problems today and must not be allowed to happen again.”
Consumers had outstanding balances of £62.8bn on their credit cards in November, up £100m on the month before. Fierce competition among providers means that on “best buy” deals, consumers can obtain 0% financing for up to 37 months.
The growth in consumer lending has been propelled by lower interest rates, helped by predictions that the Bank of England will not raise interest rates until well into 2016.
Meanwhile, the number of mortgages granted fell in October and remains at only about half the levels reached before the start of the financial crisis in 2007.
Last month lenders handed out 121,438 mortgages worth £19.7bn, down slightly on the month before. But the number of loans for buying a home rather than remortgaging edged ahead to 69,630 from 69,102 the month before.
At the peak of mortgage market activity in 2006-07, lenders were granting about £30bn a month in loans, with house purchasing running at about 120,000-130,000 a month compared with about 70,000 currently.
Separate data from the National Association of Estate Agents (NAEA) revealed that more properties are becoming available to buy, but the number of house hunters is dropping.
The number of properties available to buy per branch increased by 16% from 37 in September to 43 in October. But demand for property dropped slightly from an average of 342 house-hunters per branch in September, to 336 in October.
The NAEA’s managing director, Mark Hayward, said: “Although it is great to see supply growing and demand falling – albeit by just 2%, we cannot rest in the knowledge that the housing market is on the ‘road to recovery’. What we’re seeing is a seasonal uplift.
“Those selling their homes are keen to push through sales before Christmas, hence the uplift in properties entering the market, but with the average sale taking between nine and 12 weeks, it’s unlikely transactions will be pushed through before Christmas now. Buyers are holding off until January to kick off the new year with a house hunt.”
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