Biggest credit card binge in three years drives up lending

Figures released yesterday by the Bank of England suggest that the housing market is cooling but consumers are borrowing more and investors are taking less cash out of the stock market.

The biggest rise in credit card borrowing for three years helped drive total lending to individuals up by 1 per cent in May, despite a slight fall in the growth of lending secured against the value of customers' homes.

The total figure, which includes both consumer credit and mortgage activity, grew by £8.63bn to £868bn in May. Lending in April was £8.67bn.

Unsecured consumer debt grew by £1.73bn in May, £400m more than in April. Within that, credit card borrowing leapt by £823m to £49.5bn compared to a rise of £682m in April, the biggest increase since May 2000. Total unsecured borrowing, including credit card debt, now stands at £162.35bn.

Barclays bank warned that consumers were in danger of getting into uncontrolled levels of debt. Frederic Nzé, Barclays' consumer finance director, said: "Consumers were cautious about borrowing in April, but in May the post-war feel-good factor has given people more confidence about spending on credit cards again. However, we would urge caution and would prefer to see the rate of borrowing slowing down and declining at a faster pace during the course of this year. Consumers should be extremely wary of the 'borrowing has never been cheaper' attitude, as these remain uncertain economic times."

Lending secured against dwellings, including mortgages, remortgages and equity release, grew by 1 per cent or £6.9bn in May, compared to a rise of 1.1 per cent or £7.32bn the previous month. The Bank of England does not break down these figures, but equity release is believed to be still growing rapidly, while the number of banks and building societies launching lower-rate mortgages indicates that remortgaging is still popular. This casts a longer shadow over the volume of mortgages for straightforward house purchase, which bears out recent evidence that house price rises are cooling.

HSBC's economist, John Butler, said the figures showed that while the housing market is slowing, consumers remain hungry for debt, highlighting the danger of reducing the Bank of England base rate.

Peter Dixon, an economist at Commerzbank in London, said: "Consumers are being boosted by lower interest rates and continued strength in the job market - one of the main factors that continues to give consumers confidence that they can continue to take on debt and service it. Mortgage lending slowed quite sharply and is indicative that the market is slowing quite considerably. I think this suggests that we'll probably see an even greater slowdown in house prices."