Downturn causes homeowners to focus on repaying debt
Britons reduced their outstanding mortgage debt by £4.91 billion during the third quarter of the year, figures 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, caused homeowners to focus on repaying their debt.
But the rate at which people are paying down their mortgage slowed for the third consecutive quarter, according to the Bank of England.
The level of repayments peaked in the final quarter of last year, when homeowners injected £7.6 billion back into their properties.
Consumers' focus on paying down their mortgages is in stark contrast to previous years, when people released equity from their properties to fund large purchases.
The rate at which people unlocked money from their homes peaked during the final quarter of 2003, when a record £17.03 billion was released.
But since homeowners stopped unlocking equity in the second quarter of 2008, they have repaid a total of £33.89 billion.
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.
The money is typically used to fund big purchases such as cars or home improvements, or for debt consolidation.
But while people feel confident about increasing the size of their mortgage debt when house prices are booming, they are far less inclined to do so when they are falling and unemployment is rising, leading to the current trend to reduce mortgage debt.
House prices have also fallen by around 20 per cent from their peak to their trough earlier this year, leaving many people with insufficient equity to withdraw.
It has also become more difficult for people to increase the size of their mortgage after banks and building societies tightened their lending criteria in the wake of the credit crunch.
But while people's focus on paying off their debts may be more prudent than tapping into their housing wealth to supplement their spending, it is bad news for the economy.
Today's figures show that households spent the equivalent of 2 per cent of their post-tax income on reducing their mortgages.
This is a far cry from the final quarter of 2003, when homeowners boosted their income by around 8.5 per cent through releasing money that was tied up in their homes.
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The sixth successive, and still marked, net injection of housing equity in the third quarter of 2009 is the consequence of the increased desire of many people to improve their personal balance sheets given the worrying economic situation.
"Furthermore, recent extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages."
Independent Partners: Get fee-free expert mortgage advice and find the right mortgage deal for you.
How to cut the cost of car insurance: A five-step guide to getting a better deal
How not to go into the red over Christmas
Simon Read: The only place for debt is out in the open, don't be afraid to ask for advice
Families pay the price of superfast broadband
Donald MacInnes: I was fired for making up horoscopes and then my lifestyle deteriorated
- 1 This is what the one in ten British men who pay for sex need to know
- 2 Lee Evans announces retirement from comedy on The Jonathan Ross Show
- 3 These grandmas smoking weed for the first time are wonderful
- 4 Woman opens professional cuddling shop – gets 10,000 customers in first week
'Muslims pre-date Columbus in discovering America,' says Turkish president Erdogan
Former Tory PM Sir John Major says 'we would not have an NHS without migrants'
France 'blocks' Russian sailors from boarding a warship
G20 summit: David Cameron warns Vladimir Putin that Russia's relationship with the West is at a 'fork in the road' over Ukraine
Myleene Klass: Ed Miliband 'strikes back' by comparing UK's need for Labour's mansion tax to Hear'Say track
Coalition government has 'shifted money from poorest to better-off' through welfare cuts and tax reductions, study claims
iJobs Money & Business
£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...
£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...
$175 - $200 per annum, Benefits: full benefits: Carlton Senior Appointments: P...
Not specified: Carlton Senior Appointments: Senior MD Financial Advisor - San ...
Day In a Page
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens