But they're not "spending" their gain. They can only spend their gain if they sell their house and either don't buy another or buy a cheaper one. Otherwise they are simply spending borrowed money. The increased value of their house enabled them to borrow more money, but it's still simply borrowing.
It's no different in principle from your credit card company increasing your credit limit or you bank increasing your overdraft. You are able to borrow more, but you haven't actually gained any money. The rate will probably be a lot better with a remortgage, but it's the same principle.
Those who've borrowed more simply because their house price has increased are probably the same people who spend more every time their credit card company increases their credit limit. People who automatically grab credit which becomes available are doomed whatever happens...