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To: maceng2 who wrote (388)	8/21/2003 9:40:46 AM
From: maceng2	Read Replies (1) \| Respond to of 1417

Homeowners borrow record £25bn Heather Stewart Thursday August 21, 2003 The Guardian guardian.co.uk The Bank of England yesterday issued a stark warning to Britain's debt-burdened consumers that their long-running borrowing spree was unsustainable, after ADVERTISEMENT new figures showed that mortgage lending surged at a record pace last month. The Council of Mortgage Lenders said homeowners shrugged off fears of a downturn in the housing market to borrow a record £25bn in July - 12% up on the level in June - but minutes of this month's meeting of the Bank's monetary policy committee cautioned that the acceleration in lending "could not be sustained indefinitely". Consumers' apparently insatiable appetite for fresh borrowing was underlined by separate figures from the British Bankers Association which showed net mortgage lending up £5.5bn in July, and total lending up £12.2bn in the month. The MPC said it feared consumers could be basing their borrowing splurge on over-optimistic projections of their future income, warning of "a risk that households were extrapolating forward the unusually high rates of growth of real disposable income of recent years". The committee was also concerned that consumers "might not have fully appreciated that inflation would not reduce the real burden of debt as quickly as it had in the past". Analysts are concerned that debt levels have become so high that consumers will be hit hard if the Bank is forced to raise interest rates. "The ever-growing indebtedness of the domestic economy increases the UK's vulnerability to a sharp correction," said John Butler, chief UK economist at HSBC. Mortgage lenders also cautioned their customers against overstretching themselves. Michael Coogan, the CML's director general, said the housing market "remains stronger than expected", but consumers should bear in mind that the current "buoyant" situation will not go on forever. "To some extent the market is making hay while the sun shines," he said. "The risks of a correction have not gone away, and borrowers should remain wary of over-committing themselves." Consumers have been taking advantage of low borrowing costs since the Bank began cutting interest rates to insulate the economy from the global downturn. Some members of the committee expressed concern in yesterday's minutes that yet another cut in rates - there have been nine since the beginning of 2001 - "risked triggering an acceleration of consumer spending and an even larger rise in household debt", which would "reduce the committee's flexibility to deal with any future adverse shocks". And the MPC said rates would eventually have to go up as the economy recovers. Describing the current 3.5% level of rates - the lowest for 48 years - as "accommodating", the MPC said that: "At some stage, this expansionary stance [will] have to be moderated." However, some analysts insisted yesterday that the odds on a rate rise were still long, pointing out that the minutes also showed the MPC discussing the arguments for cutting rates. "It's pretty clear that policy is currently expansionary and it therefore goes without saying that it will have to tighten at some point in the future," said Jonathan Loynes, chief UK economist at Capital Economics. "But that does not mean that rate rises are imminent and it does not mean that policy cannot be loosened further first if activity continues to disappoint."