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Home-owners pay £6bn off mortgages

Home-owners accelerated the rate at which they are paying down their mortgages during the second quarter, figures showed today.

Borrowers reduced their outstanding mortgage debt by £6.19 billion during the three months to the end of June, according to the Bank of England.

It was the ninth consecutive quarter during which the amount of money people unlocked from their homes was negative.

The figure was also the biggest net injection of equity people have made into their homes since the first quarter of 2009.

Homeowners have now collectively injected £44.2 billion into their housing equity since the trend began in the second quarter of 2008.

The rate at which people are reducing their mortgage has also begun to accelerate again, with the latest figure well up on the £5.31 billion injection recorded during the first quarter of the year, which was more than double the figure for the previous three months.

But today's figure remains slightly down on the peak seen during the final quarter of 2008, when the economic downturn and falling house prices led to homeowners injecting £6.7 billion back into their properties.

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 the outlook for the property market and employment is uncertain.

The housing market downturn has also left many people with insufficient equity in their homes to withdraw money, while the credit crunch has made it harder for people to increase the size of their mortgage due to the tighter lending criteria banks and building societies now apply.

The recent trend among homeowners to pay down their mortgages contrasts with their behaviour during the housing boom, when they unlocked a record £17.12 billion during the final quarter of 2003.

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 2.5% of their post-tax income on reducing their mortgages.

This is a far cry from the final quarter of 2003, when people boosted their income by around 8.6% through releasing money that was tied up in their homes.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "Housing equity withdrawal has been used significantly to support consumer spending in recent years.

"Consequently, the ongoing - and increased - net injection of housing equity is adding to the constraints on consumer spending."