Householders borrowing record amounts against value of property

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The Independent Online

British households are borrowing a record amount against the value of their homes to spend on other items such as cars, electrical goods and foreign holidays, according to figures released yesterday.

British households are borrowing a record amount against the value of their homes to spend on other items such as cars, electrical goods and foreign holidays, according to figures released yesterday.

The Bank of England said that mortgage equity withdrawal - defined as borrowing which is not used to purchase or improve properties - rose to a record £13.4bn in the third quarter of last year.

This represents 7 per cent of post-tax income - not far short of the record 7.7 per cent reached in 1988 at the height of the Lawson housing boom.

The £13.4bn figure compares with a revised figure of £11.2bn for the second quarter of last year and provides a graphic example of the way in which the rise in house prices is helping fuel consumer spending and economic growth.

Bank officials stressed that the figures would also include homeowners who cashed up and left the property market altogether perhaps by moving abroad and older people taking out equity release plans to provide an income in retirement.

Separate monthly figures released by the Bank yesterday also showed that lending to individuals remained strong in November, although it grew at a slower rate than the previous month. The increase in lending of £10.2bn was £600m below October's figure. Secured lending - in essence mortgage lending - grew by £8.6bn in November, £800m less than the rise in October. But credit card spending accelerated, growing by £1.6bn compared with £1.4bn the previous month. Overall lending in the 12 months to November was unchanged from October at 14.1 per cent.

Meanwhile, there was further proof of recovery in manufacturing with the latest CIPS purchasing managers index showing that the sector expanded last month at its fastest rate in four years.

The index rose to 56 in December from 54.7 per cent the previous month - the highest since December, 1999 and well above the forecast of 55. Any number above 50 indicates expansion while any number below denotes contraction.

The London Chamber of Commerce contributed to the upbeat mood by reporting that confidence in the economy was at its highest in more than three and a half years.

The chamber's latest quarterly survey of members showed that a balance of 41 per cent of companies expect the economy to strengthen in the next 12 months - the highest figure since March, 2000. Confidence in the London economy has also improved markedly with a balance of 35 per cent of respondents expecting an improvement in the coming year compared with 20 per cent in the previous quarter and a negative balance of 16 per cent in the same quarter a year ago.

Meanwhile, John Lewis bucked the gloomy trend elsewhere on the high street by reporting a 6 per cent increase in sales in the week to last Saturday. Turnover in the group's Waitrose supermarkets rose by 22 per cent whilst sales in John Lewis department stores rose by 6 per cent.

Retail traffic figures published by the consultancy SPSL showed that shopper numbers rose last month by 0.1 per cent on December, 2002 after a last-minute surge in activity just before Christmas.

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