UK pays off £8bn of its mortgage debt

£8bn cleared off mortgage debt as remortgaging options closed

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Wednesday, 01, Apr 2009 11:04

British homeowners paid off a total of £8 billion from their mortgages over the final quarter of 2008.

New data from the Bank of England reveal Brits are no longer turning to their properties for cash through remortgaging, but are paying off their debts.

Mortgage repayment is also picking up - rising from £5.9 billion in the third quarter of 2008 to £8 billion over the final three months - as falling house prices and a crunch on lending means remortgaging options are limited.

A year before £6.7 billion of equity was withdrawn from properties - representing a 2.9 per cent boost to post tax income.

Data for the final quarter of 2008 show 3.3 per cent of post tax income went into paying off debts.

With the UK economy and consumer spending supported through spending funded by remortgaging in recent years, the move to paying off debts has serious implications for the nation as it battles through the recession.

David Breger, partner at chartered accountants HW Fisher , said: "Today's figures are a truly double-edged sword.

"While it is good to see people paying down their debt and building up equity in their homes, this process is bad news for business and the economy. If people are paying down their home loans, they are not spending, and if they are not spending UK companies and the economy generally will continue to suffer.

"To start spending again, people need to be confident, to believe that things will improve, which is why the G20 talks this week are so crucial."

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, said: "The likelihood is that despite tentative signs of a stabilising in activity in the residential market, homeowners will find it difficult to resume extracting equity from property for the foreseeable future given the weak pricing environment.

"This will provide a further obstacle to a recovery in the economy."