The trend of homeowners repaying existing debt rather than taking out new loans continued in the last three months.
The Bank of England reports that homeowners repaid more than they borrowed for the 17th successive quarter. It says this is not because of a strong desire from households to repay secured mortgage debt but more of a representation of “both lower housing market activity and a reduction in remortgaging.”
Between April and June, homeowners repaid £9.8 billion of equity compared to the first three months of the year when the net repayment was £9.6 billion.
The report says that this reflects low mortgage approvals rather than homeowners actively trying to pay off their mortgages quicker.
Mortgage approvals are roughly half the level they were at before the credit crunch started in 2007. Homeowners have opted to stay put rather than undertake expensive moves at a time of economic uncertainty and job insecurity.
The problem has been accentuated by the difficulty for first-time buyers in getting access to mortgage finance. Additionally, the average deposit required has doubled from ten per cent to 20 per cent since 2008.
The problems for first-time buyers are illustrated by the lack of mortgage choice available to them. Moneyfacts says that at the start of this month, just 69 mortgages were available for borrowers with just s five per cent deposit.
This rises to 296 for those with a ten per cent deposit. However, if you have 25 per cent equity there are 857 to choose from.
The Bank of England report says “that the fall in housing equity withdrawal since the financial crisis is likely to reflect a fall in the number of housing transactions, with little sign that households in aggregate are making an active effort to pay down debt more quickly than in the past.”
However, Howard Archer, an economist at IHS Global said that he believes the bank of England analysis that is more than a year ago may not be correct.
He said that in the past taking money out of property helped to support consumer spending. He thinks that in the uncertain economic climate households are paying down debt to improve their own personal balance sheets.
He said: “However, the Bank of England has played this down. It is notable though that the Bank of England analysis was carried out over a year ago and it looks increasingly questionable to us.
“Extremely low savings interest rates have undeniably made it much more attractive for many people to use any spare funds that they have to reduce their mortgages.”