Mortgage News
BoE: Housing equity injection remains strong in Q1
Mortgage borrowers continued to pump money back into their homes in the first quarter of 2011, despite a marked slow down on the previous quarter, according to the Bank of England.
Its latest figures for housing equity withdrawal revealed that borrowers put £5.8bn of equity back into their homes in the first three months of the year, down from £7.1bn in Q4 2010.
This was a drop of 2.3% as a percentage of post-tax income, compared to a drop of 2.8% in the last quarter of 2010.
Nevertheless, the amount of equity households repaid in Q1 was up year-on-year from £5.05bn of equity injected in Q1 2010.
The Bank of England said that borrowers’ investment in housing remains strong against net mortgage lending, with housing equity withdrawal remaining negative since Q2 2008.
However, it noted that the fall in equity withdrawal since the beginning of the financial crisis was most likely a reflection of the drop in housing transactions, with little sign that households as a whole are actively seeking to pay down debt more quickly than in the past.
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David Birne, insolvency practitioner at chartered accountants HW Fisher & Company, said: “The great debt paydown continues, if at a slightly slower rate than the fourth quarter of 2010. The latest quarterly figure could well reflect a reduction in disposable income, which is unsurprising given the state of the economy.
“The reduction of mortgage debt is always a good thing for the individual household but when it happens on such a scale and over such a time period it can have major ramifications for business, as less money makes it onto the high street.”
However, Birne said the paydown of mortgage debt is a double-edged sword, given that consumers are spending far less on the high street as a result.
He said: “In many cases, people have no option other than to pay down their mortgages, as they will have insufficient equity to take anything out anyway.
“The days of the house doubling up as a cash machine are well and truly over.
“With interest rates at their current negligible level and inflation so high, borrowers know that they are better off paying down their mortgages with any extra cash than putting money into a savings account.”