House-price growth cools as equity withdrawal soars

House prices continued to come off the boil last month, Halifax said yesterday, as separate figures revealed that homeowners had racked up record borrowings against their properties, heightening fears that millions could plunge into negative equity if the housing market crashes.

Property prices rose by 0.6 per cent in June, their slowest monthly increase since last summer, the UK's largest mortgage lender says. This followed a 1.5 per cent increase the previous month and brought the annual rate of house price growth to 21.9 per cent, against 22.7 per cent in May.

Figures from the Bank of England showed Britons withdrew £13.47bn from the value of their homes - on top of their existing mortgages - between January and March. This was the largest amount borrowed in this way since records began in 1970 and followed a revised estimate for October to December of £12.7bn. As a proportion of householders' disposable income, the only time consumers have saddled themselves with more debt was in the autumn of 1988, on the eve of a housing crash that left families nursing heavy losses.

Economists said the figures showed the consumer spending boom that has helped Britain to skirt recession was alive and well. "It suggests the consumer is still very confident, confident enough to offset any slowdown in income by borrowing more rather than spending less," John Butler, at HSBC, said. "The increasing indebtedness of consumers is raising the risk of a correction in consumer spending down the line."

Other data also supported the notion of a healthy economy, casting further doubt on the chance of a rate cut when the Bank of England's monetary policy committee meets next week, economists said. A survey by NTC Research showed the first increase in four months in permanent and temporary placements in June, and new car sales in June surged by 15.8 per cent against a year earlier to just under a quarter of a million, the Society of Motor Manufacturers and Traders say. Martin Ellis, the Halifax's chief economist, said the rise in house prices this year had exceeded initial forecasts, prompting the mortgage lender to raise its forecast for house-price growth this year to 10 per cent from 9 per cent. Prices in the first half rose by 7.1 per cent, double the long-term rate of increase, he said.

Halifax's figures added fuel to the North-South divide, with house prices in the North rising by 36.4 per cent in the past year, against an 11.5 per cent gain in London. This helped the gap between house prices in London and elsewhere to narrow slightly, from a record £95,000 to £89,000, the bank said. "Housing demand in the South, as elsewhere in the UK, remains underpinned by low levels of unemployment and low interest rates," Mr Ellis added.