There’s something extra interesting about the latest figures from the British Banking Association.

Mortgage borrowing is down – way down. There is no surprise there of course. When we tell you that there were 12.1 per cent less mortgages approved in September just gone than in the same month last year, you will no doubt think that was entirely predictable.

When you hear that mortgage approvals for house purchase were 27 per cent down on a year ago by number, and 21 per cent by value, you are hardly likely to be shocked.

Even the news that the number of mortgage approvals for house purchase were at their lowest level since 2000, is still unlikely to elicit many cries of surprise.

But what we think deserves a bit more attention is this. If absolute mortgage levels are falling less slowly than mortgages for house purchase, that suggests people are still quite happily taking out mortgages for other things – funding that holiday, for example, or paying off that credit card debt.

It’s that available luxury, for people to be able to top up their mortgage, to prop up their profligate ways, that has surely been a major source of funding for the UK’s consumer boom. How else do you explain the UK’s low savings ratio – according to the National Institute of Economic and Social Research, the savings ratio, excluding change in net equity of households in pension funds, has been negative for two quarters in a row.

A real problem could emerge, if the current liquidity crisis suddenly makes it a lot harder to top up your mortgage. Or if slowing house price inflation means that many householders do not have sufficient spare equity in their home to top up their mortgage.

If the credit crunch starts having an impact on these top up mortgages, then the consequences could be very serious. If you like this article, why not register for our daily newsletter? Or if you already receive the newsletter, then start spreading the news and tell your friends and colleagues. To register visit this link

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