Homeowners pay off £8.1bn on mortgage

Friday, 03 July 2009 12:00

Homeowners repaid a record £8.1 billion on their mortgages in the first quarter as the sharp fall in house prices has left many with reduced or negative equity.

Bank of England figures for housing equity withdrawal for the first three months of 2009 reveal individuals injected £8.1 billion into housing equity, reversing the trend of recent years for borrowing against their home.

Simon Rubinsohn, Royal Institute of Chartered Surveyors (Rics) chief economist, said: "This is not a surprise given the fall in house prices over the period and will have contributed in no small way to the weakness in high street spending.

"There have been some tentative signs of a stabilisation in the property market but it is improbable that housing capital, in the near term, will be viewed as a source of wealth that can be drawn down by home owners to supplement their income."

Analysts have noted the consumer boom over the last decade was fuelled by soaring property prices as homeowners used the equity in their homes to increase their spending power.

"However, it should be noted that housing equity withdrawal has also been used for other purposes than supporting consumer spending in the past, such as reducing debts, investing in other financial assets and topping up pensions," Howard Archer, economist for Global Insight added.

Dr Archer added: "For example, a significant proportion of housing equity withdrawal was due to older people whose children had left home trading down and using the proceeds to supplement their pensions. Sharply reduced house prices has also made this less attractive to do, which will significantly hit pensioners' wealth."

In 2008, homeowners withdrew £6.1 billion of equity from their home during the first quarter and equity withdrawal made up 2.9 per cent of post-tax income.

But by the second quarter, the figure had turned negative as house prices tumbled.

• Tags:
• equity release mortgages
,
• news