Homeowners Cut Mortgage Debts By GBP8bn

Fri, 03 Jul 2009

UK homeowners reduced their mortgage debt by a record £8.1 billion during the first quarter of the year, new figures have revealed.

A sharp fall in house prices combined with the economic downturn have put many Britons off taking money out of their property, leading to equity withdrawal being negative for the fourth quarter in a row.

The figures from the Bank of England reveal Britons injected £8.1 billion into housing equity, reversing the trend of recent years for borrowing against their home.

Homeowners' focus on cutting their mortgage debt is in stark contrast to figures for the same period of last year, when people released £6.73 billion from their properties to fund large purchases, although this was itself the lowest figure for six years.

Equity withdrawal enables homeowners to cash in on rising house prices by increasing their mortgages to convert some of the rise in the value of their home into cash .

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Sharply falling house prices have made housing equity withdrawal increasingly unattractive, while very tight credit conditions have made it more difficult to carry out the process as well as to take out new mortgages ."

"In addition, ever lower savings rates have made it increasingly more attractive for many people to use any spare funds that they have to reduce their mortgages ."

He added: "Housing equity withdrawal has been used significantly to support consumer spending in recent years."

"Consequently, the sharp turnaround from substantial withdrawals to a net injection of equity over the past year has added to the downward pressure on consumer spending."
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