The Bank of England yesterday launched a concerted effort to downplay fears of a repeat of the 1990s property crash, as new figures showed mortgage borrowing hit a record last month.
Mervyn King, the Bank's Governor, said it was "simple minded" to make comparisons with the 1980s boom based on "superficial" analysis of house prices. "I'm not sure if it is sensible to think that history repeats itself," he told the Treasury select committee.
But Mr King said those families with the most debt and lowest incomes would be hardest hit in a downturn.
He doubted a fall in house prices would hit the economy on the scale of a decade ago. "If you look at where the vulnerabilities are, even if house prices fall, we won't see the same level of negative equity as in the early 1990s," he said.
Separately, Kate Barker, a member of the Bank's monetary policy committee, said it did not raise rates this month simply to slow the rate of borrowing. "The fundamental reason was that growth prospects were bright," she told Teesside business school in Middlesbrough.
The Governor said those families pending 40 to 50 per cent of their income on debt interest were "vulnerable" if rates rose again. "It would not require a large increase in rates for these families to find themselves in the sort of difficulties we saw in the early 1990s," he said.
The Council of Mortgage Lenders said its members lent £12.9bn in October, £1bn more than the previous month. Michael Coogan, its director general, predicted another strong rise this month as buyers rushed to wrap up deals before Christmas.
There was further evidence of consumers' appetite for spending and borrowing from official figures that showed high street sales volumes last month grew by 0.6 per cent, double City forecasts.
Ross Walker, an economist at Royal Bank of Scotland, said: "Today's data [shows] it will take more than one quarter-point rate rise to rein in consumer spending."
Latest public finance figures showed a collapse in corporation tax revenues in October - normally a strong month for those receipts.
The public finances recorded a surplus of £317m, the smallest for a decade, leaving a cumulative deficit of £21.1bn after seven months compared with a full-year target of £27bn.Reuse content