Personal borrowing soars as mortgage market shrinks

by Gill Montia

Story link: Personal borrowing soars as mortgage market shrinks

Official figures from the Bank of England show that British consumers are borrowing more.

In February, credit card debt increased by £350 million, while bank loans and overdrafts rose by an astonishing £2 billion. The figures reflect the highest monthly rise since records began in 1987.

Analysts explain the dramatic shift into the red as related to the UK mortgage market. Easy access to remortgages before the advent of the global credit crisis allowed consumers to use their houses as a “bank”, extracting equity when needed.

Since last summer, banks and building societies have drastically reduced their lending.

In February, mortgage approvals for new homes were down 40% over the previous 12 months, to 74,000, and the level of mortgage equity withdrawal also shrank.

The changes in the mortgage market, which is seeing products withdrawn on a daily basis, have left some households with no option but to seek more expensive forms of credit.