British homebuyers living in a 'fools' paradise

MPs today warned that Britain is sitting on a "debt time bomb" as the latest mortgage lending figures show the amount borrowed for house purchases reached ?11.5bn in August, the highest figure since records began.

Last month saw a swing away from remortgaging (which had previously accounted for the high levels of lending) towards straight lending for house purchase, according to the Council of Mortgage Lenders (CML). The ?11.5bn lent in August accounted for nearly half of all lending, up from ?11bn in July and ?10.8bn in August last year.

Remortgaging was still strong, however, accounting for 40% of total lending at ?9.4bn. This had fallen off slightly from July when remortgaging levels reached ?10.5bn.

Commenting on the figures, Vince Cable, Liberal Democrat shadow Department of Trade and Industry secretary, said that Britain's homeowners could find themselves living in a "fools' paradise" under a "false sense of security" gained from borrowing at low interest rate levels.

"Low interest rates and high house prices have pushed mortgage lending to unsustainable levels. The consequences of increased rates could be damaging for both heavily mortgaged homeowners and heavily indebted families," he said.

The CML said that short-term one to two year fixed rate mortgages had surged in popularity but that only a fifth of those going for fixed rates were opting for fixes of between two and five years, while only 4% set their repayments for longer than five years.

"The housing and mortgage markets have remained stronger for longer than we expected earlier this year. But we continue to expect a slowdown in house price growth," said CML director general Michael Coogan.

"People borrowing should factor in an expectation of higher interest rates next year," he added.