Homeowners' borrowing reaches record ?13.3bn

Mortgage equity withdrawal hit a record high in the last three months of 2002 as homeowners cashed in on the property boom to stack up a massive £13.3bn of debt against the rising value of their homes.

While house prices rose by another 1.9% in March, according to the Nationwide building society, figures from the Bank of England yesterday showed total mortgage equity withdrawal in 2002 was more than £42bn, up 76% on a year earlier.

As a proportion of take-home pay, equity withdrawal has reached levels last seen at the height of the late 80s housing boom, with consumers using it to fund a spending spree. In the last quarter of 2002, it was at 7.2% of post-tax income - the highest level since July-August 1988, when it peaked at 7.6%.

Sky-high property prices are also provoking lenders to loosen traditional lending limits. Halifax, Britain's biggest lender, yesterday confirmed that it is raising its official ceiling for loans from 3.25 times a borrower's salary to 3.7 times. But mortgage brokers say the lender has been offering much higher multiples - as high as five times salary - for borrowers who gain an A grade on a credit score scale.

Simon Jones of Savills Private Finance said: "Halifax has increased its multiples and will give you even more if you take a fixed rate. Other lenders such as Standard Life, Intelligent Finance and sometimes Nationwide will also go to five times salary if you meet credit scoring criteria."

Halifax insisted the move only brought it into line with rivals. "There is a theoretical possibility of getting six times salary from us, but you would have a better chance of winning the National Lottery," said communications director Shane O'Riordain.

The price of the average house rose to £122,180 last month, according to the Nationwide's monthly survey - an annual rise of 26.2%. But wide disparities between regions, with prices beginning to fall in Scotland and Yorkshire, corroborated the mixed picture of the market presented by the Halifax survey on Wednesday.

Analysts said these divergences showed that, despite yesterday's strong headline figure, house price inflation was likely to soften in the coming months, as the Bank of England has predicted.