£9.1bn paid back in second quarter of year as nervous households seek to cut borrowing
Britain’s nervous homeowners paid down a record £9bn on their mortgages between April and June as they struggled to restore their tattered finances.
Figures released by the Bank of England on Wednesday show that a record £9.1bn was paid back in the second quarter of this year alone – the largest figure ever, amounting to 3.5% of consumers’ post-tax income.
During the boom years, by contrast, mortgage equity withdrawal peaked at 5.6% of post-tax income, in late 2006.
When house prices were rising rapidly, mortgage equity withdrawal boosted consumer spending as homeowners extended the mortgages on their existing property and spent the proceeds.
But since the recession began in mid-2008, the total owed by the nation’s mortgage borrowers has declined by £92.9bn. There has now been net mortgage repayment every quarter for more than three years.
Howard Archer, of consultancy IHS Global Insight, said: “the record net injection of housing equity in the second quarter points to a strong desire and perceived need of many people to improve their personal financial balance sheets given high debt levels and serious concerns over the economic situation and jobs.”
Pessimism about the future outlook for house prices, which have been drifting down in most parts of the country over the past year, is also likely to have persuaded households to try to reduce their borrowings.
The news provides fresh evidence that with the economic outlook darkening, households are in no mood to spend. Separate figures released earlier this week showed that while credit card lending is still rising, it is doing so very slowly, at just £49m in October.
The Bank said the reversal from mortgage equity withdrawal to repayment since the start of the credit crisis also reflected the sharp decline in housing transactions since the boom.
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