Nov 25 2005
Despite soaring levels of mortgage repossession orders, the total value of approvals for mortgage loans has rocketed by 40% (from £6.7bn - £9.4bn) during October 2005 and the corresponding period last year, whilst the actual number of loan approvals has risen by 23%, according to the latest statistics issued today by the British Bankers' Association and analysed by Grant Thornton's personal insolvency practice. With credit card borrowing rising at a slower rate over the last few months, the indications are that consumers are transferring credit card debt to home loans.

Gross mortgage lending reached £17.5bn during October 2005, and whilst lower than September's total (£17.8bn), this represents the second highest monthly figure since July 2004. Whilst remortgaging loans were 2% lower by number between October 2004 and the same period in 2005, the value of such loans were 14% higher. New borrowing on credit cards totalled £7.3bn during October 2005, which is relatively unchanged from last year's total (£7.1bn).

Mark Allen, partner within Grant Thornton's personal insolvency practice said: "Many consumers with variable rate mortgages have clearly taken advantage of August's interest rate cut to transfer their credit card debts to their home loans. This would account for the fact that credit card spending was relatively static during October, whilst the value of remortgaging loans markedly increased. However, despite the fact that credit card borrowing is rising at a slower rate, during September there were still approximately 58 credit card transactions per second in the UK, so it is important to keep things in context."

"Transferring money from credit cards to a mortgage loan is not without risk. During the third quarter of 2005 there was a 66% increase in the number of mortgage possession orders compared to the same period last year, and with soaring levels of personal insolvencies, consumers need to be careful about how they manage their finances."

"A secured loan may seem a practical solution with Christmas on the horizon and will mean that consumers have a little extra cash to line their pockets during the festive season. This may also mean that consumers are less inclined to reach for their credit card in the near future. However, this may prove a short term fix when the chicken comes home to roost in the event that interest rates could increase in the new year," he concluded.