Mortgages paid off at record rate
Bank of England figures show homeowners paid off £7bn of mortgage debt in the last quarter of 2010
Homeowners paid off their mortgage debt at the fastest rate since records began in 1970, injecting £7bn of equity in the final quarter of 2010, according to the Bank of England.
This was well up on the net repayment of £6.6bn in the third quarter of 2010, as well as the £6.2bn seen in the first quarter, and represents the largest net injection of equity on record.
It also marks the eleventh successive quarterly net repayment of mortgage debt, meaning homeowners have been investing more in their homes than they have been taking out in loans – paying off a total of £57.4bn since the second quarter of 2008.
In contrast, there was persistent housing equity withdrawal between 1997 and the first quarter of 2008 – including a sizeable £13.8bn in the first quarter of 2007.
The trend for repaying mortgage debt is being fuelled by homeowners using extra money from lower mortgage interest payments to reduce the balance they owe on their houses, while extremely low savings rates make it far more attractive for people to use spare cash to reduce their mortgages.
Tight credit conditions have also made it more difficult for many people to withdraw housing equity.
Howard Archer, chief European and UK economist at IHS Global Insight, said: “The record figures highlight the strong desire and perceived need of many people to improve their personal balance sheets given high debt levels and serious concerns and uncertainties over the economic situation.
“The overall softening in house prices from their late-2007 peak has made housing equity withdrawal less attractive. And of course, house prices have fallen anew overall in recent months, which is likely to further encourage a net injection of housing equity in the near term at least.”
Housing equity withdrawal was used to support consumer spending during the boom years, but Archer said the ongoing net injection of housing equity is adding to the constraints on consumer spending, including high unemployment, negative wage growth and high debt levels.
Source: The Guardian