Mortgage debt broke through the £1 trillion barrier last month as the Bank of England warned the number of people with serious money problems would soon hit half a million.
Outstanding mortgage debt hit £1,006,796m in May as new net lending surged £9.3bn on the month, the biggest gain for two and a half years, the Bank said.
The number of mortgage approvals - loans offered but not yet made - rebounded to 117,000 from 106,000 in April, pointing to an insatiable appetite for debt.
Mervyn King, the Bank's governor, said the scale of the debt was not a worry for economic stability as it was far outweighed by assets on households' balance sheets.
But he said the annual increase in the number of insolvencies of 80,000 people, or 0.2 per cent of the adult population, was "quite high".
"If the flow increases at its current rate it is conceivable that after a period of time you would get to the point where the total stock of people with a credit scoring with a history of insolvency or bankruptcy could reach one in 100 of the adult population," Mr King said.
Based on the 2001 census, that would amount to 481,000 people - although the population has undoubtedly risen since then.
"These are not wealthy people but are often poor people who have taken out big credit card bills," he said. "But at this stage I won't pretend that this is a major issue facing the [Bank]."
This month the Consumer Credit Counselling Service said "extreme" debt was worsening. The proportion of clients owing more than £100,000 to creditors increased last year to 2.7 per cent from 1.4 per cent in 2004.
Vince Cable, the Liberal Democrat Treasury spokesman, said: "Mortgage debts have rocketed under this Government, leading to a growing minority in extreme financial difficulty."
George Osborne, his Conservative counterpart, said: "These figures show the country is becoming mortgaged up to the hilt. That's bad news for vulnerable families at risk from the impact of higher interest rates."
Yesterday's figures showed consumer credit shot up in May by £1.2bn compared with £0.82bn in April and analysts' forecasts of an increase of £1bn.
Economists in the City said the pick-up in mortgage loans and approvals pointed to further rises in house prices. "Activity in the housing market should support house prices at least in the near term," John Butler, at HSBC, said.
Others pointed to separate figures from Nationwide Building Society showing the average price of a home rose by a modest 0.3 per cent in June.
Ed Stansfield, the property economist at Capital Economics, said the 1 per cent rise over the three months to June was half the rate of the first quarter.Reuse content