Retail Sales: Shopaholics Face Debt Crisis

1.41.39pm GMT Mon 3rd Nov 2003

Reacting to figures from the CBI this morning showing retail sales growing at their fastest rate for 18 months, Vince Cable MP, Liberal Democrat Shadow Chancellor, said: "With everybody warning that interest rates will rise, today's figures reinforce fears that if the consumer debt bubble busts, people are going to be left rueing their shopping sprees."

"With households getting into more and more debt, many are almost in as deep as when house prices collapsed in the early 1990s and caused so much pain to so many families."

"It is time the Government took action to protect ordinary people against irresponsible lending."

ENDS

The most recent MPC minutes noted that house prices are 'well above' what the Bank considers sustainable and that the recent rises in house prices may have been driven by 'speculative behaviour and/or over-optimistic views about the sustainable level of house prices' (para. 12).

There are four worrying signals for the housing market:

1.· 50% of mortgage borrowers are borrowing over three times their income - the highest ever (Council of Mortgage Lenders, 20/10).

2. Less than half of all mortgage lending is now for new house purchases - almost half is remortgaging for spending elsewhere (Council of Mortgage Lenders, 20/10).

3. ·The ratio of debt to income is now 120%, compared to 100% at the height of the Lawson boom (Bank of England Quarterly Bulletin Autumn 2003).

4. ·The ratio of house prices to income is now 160%, a similar level to the ratio just before the collapses in house prices in the early 1990s (BoE Quarterly Bulletin Autumn 2003).

Vince Cable MP has been warning for over a year that the Government, Bank of England and Financial Services Authority need to address aggressive and irresponsible lending by some of the leading commercial banks.

The FSA and Bank of England need to take responsibility for ensuring that lending institutions are not taking excessive risks with consumer and commercial lending against property prices - to avoid a Japan-like situation of a collapse in asset prices.