Credit doubles as Britons go on a debt binge

Tim Wallace
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London leads a boom in house prices that threatens to spiral out of control

CONSUMER credit is rising twice as fast as previously thought, the Bank of England admitted yesterday, raising new concerns over a bubble in lending.

The borrowing splurge means households borrowed an extra £864m on credit cards and via other unsecured loans in September – more than double the £411m the Bank had previously, and mistakenly, announced.

The growth in unsecured lending in the three months to September has thus risen to an annualised rate of 5.8 per cent, a pace not seen since April 2008.

“It seems improving consumer confidence means people have become more prepared to borrow,” said economist Howard Archer from IHS Global Insight. “It may also be that the squeeze on consumers from inflation running well above earnings growth for an extended period means some people are having to borrow more to finance any major spending.”

It came as Nationwide’s house price index jumped 5.8 per cent in the year to October, with the average UK house now costing £173,678, increasing worries that London is leading a boom in the housing market. That is a sharp acceleration from the five per cent registered in the 12 months to September.

And property group Hamptons International today forecast that two-bed houses costing below £250,000 will all but vanish from the capital by 2018. Currently the average two-bed dwelling in much of outer London costs below £250,000. But in just five years those prices will only be found in the outer boroughs of Croydon, Bexley, Havering and Barking and Dagenham.

“London is at increasing risk of a housing bubble,” said Moody’s Analytics. “Undersupply and strong domestic and foreign demand remain the drivers of London’s sustained price rises while low mortgage rates and the Help to Buy scheme are driving recent exuberance.” To add to buyers’ woes, Commerzbank analyst Peter Dixon warned the scheme, which gives government guarantees to buyers with five per cent deposits, could end up locking families out of home ownership. He fears it will drive up prices, then cut off prospective buyers, leaving those with low savings stuck.

“Without a coherent approach to the supply side of the market, prices – which are already elevated – will likely increase further,” Dixon said. “This may have a paradoxical effect of locking more people out of the market.”

The Treasury has given the Bank of England a say over whether the Help to Buy scheme is closed in three years’ time.

Unsecured consumer credit up £864m in September. Up 5.8% annualised on a three month basis

UK house prices up 5.8% in the year to October

Central London house prices up 11.5% this year and 8% next year