Consumer borrowing rises to pre-crisis levels

In its latest health check of the economy, the Bank of England found that personal credit, which includes overdrafts, loans and credit cards, rose from £1.2 billion in October to £1.5 billion in November, creating an annual growth rate of 8.3 per cent — its highest since February 2006, reports The Times.

Joanna Elson, chief executive of the Money Advice Trust, said: “These figures confirm that we do need to keep a watchful eye on the huge growth in consumer credit we are now seeing.

“Increased borrowing is to be expected in an economy that is recovering — but such steep rises in borrowing in recent months are a cause for concern,” she said.

She emphasised that, while many households would be able to handle this extra borrowing, many others would not — its research showed that nearly six million people were likely to fall behind on their finances this month after a Christmas that more than one in three put on credit.

As well as cheap credit, recent official figures have indicated that households have been dipping into their savings to fund spending, which rose 0.9 per cent in the third quarter, pushing its annualised growth rate to 3 per cent, its highest since before the financial crisis.

The Bank’s figures also showed that lenders approved more mortgages for house purchases than economists had been expecting in November, rising from 69,867 in October to 70,410, the most since August.

The figures suggest that Britain’s housing market is beginning to recover from its dip in 2014, when tougher rules on mortgage lending took effect, requiring banks and building societies to make more rigorous checks on whether borrowers could afford their loans.

Net mortgage lending, which lags approvals, rose by £3.9 billion in November, the Bank said, the biggest monthly increase since just before the financial crisis started eight years ago and exceeding all forecasts.

In the three months to November, mortgage lending rose by 3.5 per cent, the fastest since June 2008.

This all helped to push household borrowing up by £5.3 billion in November, which was higher than the average monthly increase of £4.1 billion over the previous six months.

Howard Archer, the chief UK and European economist at IHS Global Insight, said: “This will fuel concern that consumers are borrowing more and saving less to finance their spending, which is likely a consequence of relatively high consumer confidence and extended low interest rates.

“This is something that the Bank of England needs to keep a close eye on, and it does appear that some MPC members are becoming more worried.”

The figures were compounded by a monthly survey from the National Association of Estate Agents indicating that activity was heating up again.

The number of house hunters chasing each property rose from 336 in October to 403 in November, while supply fell from 43 per branch last month to 41. This meant there were ten prospective buyers battling it out for each property.

This will fuel fears that the imbalance between supply and demand will push house prices higher.

The National Association is predicting that house prices will increase by 50 per cent by 2025, reaching an average £419,000.