Debt raises fears of property slump

CONSUMERS embarked on another huge borrowing binge last month, heightening fears of rising interest rates and an early 1990s-style housing crash.

They piled on £7.35bn of extra debt in March - a 37% increase on a year ago.

Mortgage lending accounted for nearly £6bn of the rise, while spending on credit cards grew £484m, according to the British Bankers' Association. Both increases were much higher than in recent months.

'March saw a large rise in mortgage lending and, with consumer credit rising by more than in February, individuals' appetite for borrowing shows little sign of abating,' said director of statistics David Dooks.

The borrowing blowout came despite two interest rate rises, in November and February, delivered by the Bank of England, taking the base rate to 4%.

Richard Lambert, a member of the Bank's nine-strong monetary policy committee, said today the moves had made little impact.

Rampant mortgage lending will fuel the housing market, already in the grip of a new boom. A day after the International Monetary Fund warned spiralling property prices posed a threat to the entire economic outlook, Lambert said they also posed a dilemma for the MPC.

'For the MPC, perhaps the biggest domestic uncertainty now is the outlook for the housing market over the next year or two,' he said in a speech to the Institute for Public Policy Research.

'Our job is to target inflation, not asset prices, but the committee will need to explain with great care the impact that house prices can have on consumption and inflationary pressures, and how in turn that influences its policy decisions.'

Economists said today's figures increased the likelihood the MPC would lift rates at its next meeting on 6 May.