The Inside Edge
It seems that Britain is becoming a nation of nervous homeowners if the latest figures are anything to go by. A record £9bn was paid down between April and June as homeowners struggled to restore ailing finances.
These figures were released by the Bank of England on Wednesday and show that this record figure was paid back in the second quarter of 2011 alone – this amounts to the largest figure ever, amounting to 3.5% of post-tax income for many consumers.
In contrast, mortgage the withdrawal of mortgage equity peaked at 5.6% of post-tax income in the last quarter of 2006.
During periods where house prices were on the rise, the withdrawal of mortgage equity booster consumer spending as more and more homeowners extended their mortgages and spent the proceeds.
However, since the recession first hit in 2008, the total figure owed by Britain’s mortgagees has declined by over £92bn.
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.”
It’s also likely that many homeowners have a very pessimistic outlook on the future of house prices and this has also played a huge factor in households attempting to reduce their borrowing.
This news provides more evidence that the economic outlook is becoming bleaker. Households are no longer in the spending zone and are instead becoming more and more frugal, paying out more on reducing debt, and altogether being more cautious. Whilst this is good for the individual and family households, it’s doing nothing to boost an economy that needs lifting out of the doldrums. However, credit card lending is still rising albeit very slowly.
The Bank of England said the reversal to repayment from mortgage equity withdrawal also reflects the sharp decrease in housing transactions since the boom.
Of course, it’s not just a case of homeowners not withdrawing equity. Many don’t have equity to withdraw on their property due to falling house prices. This seems to be the main culprit for the change in attitudes and looks set to stay that way for the foreseeable future.