Homeowners have gone on a borrowing binge as cheap re-mortgaging deals dry up.

Credit card debt went up by £350 million and bank loans and overdrafts soared by £2billion in February.

It was the highest monthly increase since records began in 1987, according to today's Bank of England figures.

City economists said the "bizarre" jump in consumer borrowing was caused by the re-mortgage "tap" being turned off by lenders because of the global financial crisis. Tracey North of uSwitch.com said: "People are grabbing what credit they can." Today several banks followed First Direct in scrapping their cheapest deals.

The figures show banks and building societies have drastically reined in their lending with mortgage approvals down 40 per cent in a year to 74,000 in February. It is the second lowest level since the Nineties housing crash. The level of mortgage equity withdrawal has also shrunk.

Instead of being able to spend the equity in their homes, hard-pressed families are having to seek more expensive forms of credit.

The fear is that once borrowers have exhausted all sources of credit, many will be forced into insolvency or have to give up their homes. A similar pattern was seen last year in America as the subprime credit crunch took hold.

Another factor is that an estimated 1.4 million borrowers face big increases in their mortgage costs this year when they come off fixed deals taken out two or three years ago. On a typical London mortgage of around £200,000, the increase could be £150 a month.

Howard Archer, chief UK economist at City forecasters Global Insight, said: "February's jump in consumer borrowing is very surprising, and could be a consequence of people looking to borrow while they can amid fears that tightening credit conditions will make this increasingly difficult over the coming months.

It follows a period when consumers have been paying off expensive bank loan and credit card debt, often with money borrowed against their homes.

Commentators also said the debt helped explain the stronger than expected high street spending figures in recent months.

Richard Snook, economist at the CEBR think-tank, said: "Consumers are very, very happy to expand their spending in the good times but less willing to rein it in in the bad times. They are very resistant to tightening their belts."

The statistics come the day after First Direct said it was halting all mortgage approvals to new borrowers because it was overwhelmed by the number of applications.

It follows the first official confirmation of a downturn in the London property market with prices dropping 0.4 per cent in the capital.

Liberal Democrat shadow chancellor, Vince Cable said: "It is becoming clear that the downturn in the housing market is much more than just a blip.

"As the credit crunch continues to restrict lending and with many people saddled with masses of personal debt, a dramatic fall in mortgage approvals was inevitable.

"As house prices continue to fall and mortgage costs rise, we are in real danger of returning to the woes of the Tory recession with large numbers of families suffering negative equity and repossession.

"The Government must act now to prevent mass repossessions which will only worsen this housing crash."

Some borrowers will also not reap the benefits of official interest rate cuts expected next week, analysts warned. NatWest and its parent company Royal Bank of Scotland, along with Kent Reliance Building Society, today became the first lending institutions to raise mortgage rates for existing customers.

The latest evidence of the meltdown in the mortgage market came as the European Union said it will launch a full investigation of the state rescue of Northern Rock.

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