Borrowing spree slackens after mortgages hit record

Housebuyers' appetite for debt is finally waning, banks said yesterday, as figures showed mortgage lending reaching a record £56.4bn last year.

The slowdown in the pace of borrowing over the last three months of 2002 was a sign that households were starting to tighten their belts, said the British Bankers' Association, although its own figures showed outstanding mortgage debt at a record £427bn.

Pointing to the fact that fewer loans were approved last month than in December 2001, the BBA's chief executive Ian Mullen said a "correction" appeared to be showing in the housing market.

The figures also showed consumer borrowing slowing in the final quarter, which is usually the busiest period.

"Although consumer credit was stronger in December, this was more a reflection of subdued borrowing in October and November rather than a rush to fund Christmas on credit," Mr Mullen added.

The rapid build-up of consumer debt is worrying the City's watchdog, the financial services authority, which said last week that a fifth of households were already having difficulty paying off their loans.

Encouraged by the lowest lending rates in 40 years and the furious pace of house price rises, consumers have gone on a borrowing spree.

The FSA said households did not seem to be "thinking ahead sufficiently prudently" and could have trouble repaying the extra lending stacked up on the value of their homes.

City analysts said the BBA data suggested households were taking a more cautious view about their finances. "Consumers are still taking advantage of lower interest rates to move from one provider to another, but mortgage equity withdrawal may be peaking," said George Buckley, UK economist at Deutsche Bank.

After being wrong-footed in previous years by relentless house price rises, few analysts are prepared to call the peak of the market. But Mr Buckley said the fall in approvals in December could signal a quieter period. The big banks advanced £13.02bn in home loans last month, down from £14.36bn in November and the lowest sum since June. Mr Buckley said the December figure was still 40% higher than a year earlier - an indication of how much steam the market had built up over the year.

Credit card spending hit a record £7.28bn in December. This was offset by strong repayments as households sought to get on top of their debts. The overall rise in debt was £306m last month.