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Homeowners `increasingly paying off mortgage debt`

03/04/2009

Homeowners in the UK are increasingly opting to repay their mortgage debt, new figures suggest.

Produced by the Bank of England (BoE), the statistics indicate that a total of £8 billion worth of such debt was paid off by consumers between the months of October and December last year.

In addition, housing equity withdrawal - whereby property owners increase the size of their mortgage so that they can spend money on things such as improvements to their homes - was said to have declined for the ninth month in a row.

Debt accrued in this fashion peaked in late 2003, when housing equity withdrawal increased household incomes by 8.5 per cent, the BBC reports.

The news provider said that housing equity withdrawal has gone into reverse for a number of reasons.

For example, the credit crunch has forced lenders to restrict the amount of credit they offer consumers.

In addition, banks and building societies are reluctant to grant additional secured loans while house prices continue to fall.

Responding to the BoE figures, David Breger of HW Fisher chartered accountants said they are positive in that they reveal that consumers are reducing their debt.

However, he added that it is also bad for the economy more broadly.

Mr Breger stated: "If people are paying down their home loans, they are not spending and if they are not spending UK companies and the economy generally will continue to suffer."

Earlier this year, the BoE claimed that borrowers were injecting equity into housing in order to reduce their debts at an "unprecedented rate".

However, the organisation said that the data probably indicated a reduced capacity to withdraw equity, rather than a concerted action by consumers to cut mortgage debt.

In addition, current market conditions represent a good opportunity for "prudent borrowers to reduce mortgage debt" when such action suits their individual circumstances, it suggested.

Last month, the Finance and Leasing Association (FLA) released figures which revealed that second mortgage new business fell last year.

According to the organisation, its members wrote £53 million of new secured loan business in January 2009, compared with just over a third of a billion pounds in January last year.

Second charge mortgages are traditionally used by borrowers to make improvements to their homes or for debt consolidation purposes.

According to the FLA - which represents the asset, consumer and motor finance sectors in the UK - the downturn in such lending this year compared with 2008 is "marked".

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