Equity withdrawal and new mortgage loans Fall

The amount of money homeowners are borrowing using equity withdrawal has fallen by around 64% in the first quarter of 2008, according to data released by the Bank of England.

Equity withdrawal allows people to take out larger mortgages and spend the excess on things other than their home. Since 2000, £311 billion has been borrowed using this method.

However, this figure is expected to decline further as property prices continue to fall. For example, equity withdrawal fell to £5.043 billion in the first three months of 2008, the lowest level since 2001.

Howard Archer, chief UK and European economist at Global Insight, said: “Sharply reduced housing equity withdrawal will add to the mounting pressure of consumer spending already coming from modest disposable income growth, rising utility bills, elevated food prices, tighter lending conditions, higher mortgage rates, increased debt levels and rising unemployment."

Other figures released by the Bank of England showed that there had been 42,000 mortgages approved in May. This is a decline of 27% compared with April and a 64% fall compared with a year ago.

These are the lowest figures since the Bank of England began recording mortgage approvals in 1993. They are even lower than many analysts’ expectations.

House prices have also fallen, according to the latest survey by the Nationwide. June saw a 0.9% decline, bringing average house prices to £172,415 – which is 6.3% lower than last year.

A statement by the Nationwide said it is unlikely that there will be a rapid turnaround in the housing market over the next few months.

« back to development finance news