British homeowners continue to trim mortgage debt

Published 30th Dec 2009

• Survey finds mortgage debt fell by £4.9bn in third quarter
• Britons increasingly shun personal loans and credit cards


Britons reduced their outstanding mortgage debt by £4.9bn during the third quarter of the year, figures from the Bank of England showed today.

The amount of money people unlocked from their homes was negative for the sixth quarter in a row, as the economic downturn, combined with recent house price falls, prompted homeowners to focus on repaying their debts.

However, the figures showed the rate at which people are paying down mortgages had slowed for the third consecutive quarter.

In the first and second quarters of this year, homeowners reduced their mortgage debt by closer to £7bn each quarter.

The repayments follow a decade in which homeowners consistently withdrew equity from their homes, seeing this as a cheap way to fund bit purchases or pay off other debts.

In the first quarter of 2007, shortly before house prices reached their peak, homeowners withdrew £13.8bn from their properties – a figure equal to just over 6% of average post-tax household income.

The repayments in the third quarter of this year were worth 2% of post-tax income.

Howard Archer, chief UK economist at IHS Global Insight, said the injection of housing equity was the result of people hoping to improve their personal balance sheets in the light of problems in the UK economy.

He added that low interest rates on savings have made it more attractive for many people to use any spare funds they have to reduce their mortgages. He said: "Housing equity withdrawal has been used significantly to support consumer spending in recent years. Consequently, the sharp turnaround from substantial withdrawals up to and including the first quarter of 2008 to a net injection of equity over the past six quarters has added to the constraints on consumer spending."

Figures published last week by the British Bankers' Association suggest Britons are also increasingly turning away from taking out personal loans and using credit cards.

The figures showed that the amount of unsecured debt has plummeted in the past 12 months.

While borrowing to buy homes reached its highest level in two years last month, the value of new personal loans in November stood at £1.1bn, a fall of 43.7% compared with the same month last year.

Source: ' Guardian '

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