Mortgages paid down by record £9bn in quarter

Homeowners pumped a record £9.1bn into reducing the debt on their properties in the second quarter, the Bank of England revealed yesterday.

It was the highest negative figure since comparable records began in 1970 and means the total amount owed on mortgages has fallen by £92.9bn since the height of the credit crunch.

Homeowners spent the equivalent of 3.5 per cent of their take-home pay on their mortgages during the three months to the end of September, the Bank said. The figure is a stark contrast to five years ago when property prices seemed to be on a permanent upward slant. In late 2006, homeowners took out the equivalent of 5.6 per cent of their take-home pay from their mortgages.

The trend for increasing the amount of equity homeowners have in their property has been gradually increasing since 2008. That is partly on the back of the flat or falling housing market, but also because of volatile stock markets and record low interest rates.

In other words, cash works harder reducing mortgage debt than in savings, even with the low standard variable rate environment of the past two years. However, Kate Reinold of the Bank of England's structural economics analysis division, said the record negative figures do not prove that householders are paying down debt more quickly than in the past. Writing in the the Bank's Quarterly Bulletin, Ms Reinold suggested that the slump in property market activity since the financial crisis had been the "key driver of the fall in equity withdrawal".

"Tighter credit conditions have led to a large reduction in the number of first-time buyers," she reported, adding that, in turn, fewer first-time buyers meant fewer housing chains.

"Housing chains lead to large equity withdrawals, so the lower number of housing market transactions, all else equal, will have led to lower equity withdrawals," Ms Reinold wrote.

She also pointed out that the tighter credit conditions may have meant that some homeowners have become less able to draw down on their housing equity than in the past. In other words, they may have been refused permission to borrow against their home.

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