Fears that the recent rise in house prices will trigger a consumer boom faded yesterday after official figures showed that households had reduced their reliance on their homes as a source of finance.
The amount homeowners borrowed against their properties fell to £11.3bn in the three months to June compared with £12.9bn in the first quarter of the year. This brought it as a proportion of post-tax income - the more reliable indicator - to 5.2 per cent in the second quarter from 5.9 per cent in the first.
It was the first decline in mortgage equity withdrawal (MEW) since last summer and was way below the record £17.3bn chalked up in the final quarter of 2003. However analysts said the figures did not include the boom in prices this summer that was likely to fuel an upturn in the current quarter.
MEW represents borrowing secured on housing that is used either to fund a spending spree or to rebuild savings.
Howard Archer, chief UK economist at Global Insight, said: "A significant proportion of MEW may be due to older people... trading down and using the proceeds to supplement their pensions."
Michael Taylor, an economist at Lombard Street Research, agreed that MEW was not currently being spent, but said it had left households in a stronger position. "Rising house prices and strong household sector balance sheets should continue to support strong consumption growth into next year," he said.
However Vicky Redwood, a UK economist at Capital Economics, said that, while only a small share of MEW was spent, the decline came on top of a slowdown in the growth of both household income and unsecured borrowing over the same period.
"As such, the growth of all the money available for households to spend has slowed sharply," she said. "At the very least, the recent slowdown in the amount of money households have at their disposal to spend will keep the spending recovery in check."
Meanwhile a survey of consumer confidence showed that one in eight people believed their income would fall over the coming year. Nationwide building society said higher utility bills were likely to be a big factor in this along with the widespread expectations of another rise in interest rates next month.Reuse content