Growth in personal debt slowing

UK consumers took out fewer loans, credit cards and mortgages in July than they did in June, according to the Bank of England (BoE).

Consumers now owe a total of £1.014 trillion, having taken on an extra £10.4bn of debt in July.

This was less than the £11.23bn borrowed in June and could indicate that the housing market is slowing.

Last month, the BoE revealed that consumer debt had broken through the symbolic £1 trillion barrier.

Market slowdown

Growth in all types of personal debt abated in July, according to the figures.

Consumers built up an extra £1.8bn worth of debt on their credit cards in July, compared to £2.2bn in June.

But the major slowdown occurred in loans secured against homes, such as mortgages and re-mortgages.

A total of £8.6bn was loaned against property in July, compared to £9.3bn.

According to the BoE, about 80% of personal debt is in the form of loans secured against homes.

Recent surveys have suggested that the housing market is slowing.

The BoE figures showed that the number of loans approved for house purchase fell from 112,000 in June to 97,000 in July, figures which go some way to supporting the theory that the housing market is cooling.

We are on the cusp of either a soft or hard landing for the housing market Ed Stansfield, Capital Economics

The BoE figures on mortgage approvals correspond to data released by the British Bankers' Association (BBA) last week.

The number of mortgages approved for house purchases fell by more than a fifth in July, the BBA said.

A total of 70,756 new loans were approved in July, down from 88,859 in June and almost 19,000 lower than in the same month last year, the BBA said.

"We are very near to the 90,000 loans-approved mark, which in the past has indicated house price inflation at or close to zero percent," Ed Stansfield, economist at Capital Economics told BBC News Online.

"We are on the cusp of either a soft or hard landing for the housing market but everything suggests a downturn in house price inflation is taking place."

Rate implications

The BoE has raised interest rates five times since last November, with at least one eye on curtailing growth in UK house prices.

The BoE's rate-setting committee meets next week to decide whether to lift rates again and Tuesday's weaker lending figures may discourage it from raising rates.

The rate setters hope that higher rates will restrain inflation, rising house prices, consumer spending and debt levels. The committee has however to walk a fine line, as higher rates could slow economic growth and even trigger a slide in property prices.

"Both consumer credit and mortgage approvals, a leading indicator of the housing market, are weaker and this supports the market's view that the UK interest rate cycle is at or near its peak," said Steve Pearson, a currency analyst at HBOS.