Housing upturn as mortgages hit 2004 levels

Consumers are increasingly reluctant to borrow money, Bank of England data showed yesterday, but mortgage lending is picking up strongly, indicating the worst may be over for the housing market.

The Bank said unsecured credit rose by just £927m in November, the smallest increase in almost five years and one economists say is likely to keep the lid on consumer spending in coming months.

A recent survey showed consumer confidence is at its lowest in more than two years. And retail data suggests that spending was reasonably strong in the run-up to Christmas but may have tailed off since.

By contrast, the Bank said mortgage lending rose by an unexpectedly strong £8.7bn. There were 115,000 new mortgages approved in November - the most since May 2004 and a rise of more than 50% over the previous November.

This is the latest data to suggest that the property slowdown of 2004 and 2005, which saw the annual rate of house price rises slow to 3% from 17%, may be over.

Geoffrey Dicks, at Royal Bank of Scotland, said the figures left the Bank facing a familiar dilemma over setting interest rates. "[The] housing market ... is recovering well, with households not afraid to take on more debt, but real economy and inflation numbers ... are much softer."

But Simon Rubinsohn, an economist with Gerrard Ltd, believes the data might be out of date. He said: "Reports from the retail sector in the run-up to Christmas point to a rebound in spending, which is likely to have been accompanied by some recovery in credit card borrowing."

The Bank cut rates by a quarter-point in August - to 4.5% - and this has given the housing market a fillip, analysts say. Many economists expect another cut, possibly next month, as growth slows and unemployment rises. Other data yesterday showed growth in construction slowed to its weakest in seven months in December. Housing construction contracted again.