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UK mortgages being paid off at faster rate

Homeowners continued to accelerate the rate at which they are paying down their mortgages during the third quarter of the year, figures showed today.





Borrowers reduced their outstanding mortgage debt by £6.1 billion during the three months to the end of September, according to the Bank of England.

It was the 10th consecutive quarter during which the amount of money people unlocked from their homes was negative.

The figure was also the biggest net injection of equity people have made into their homes since the first quarter of 2009.

Homeowners have now collectively injected £49.7 billion into their housing equity since the trend began in the second quarter of 2008.

The rate at which people are reducing their mortgages accelerated for the third quarter in a row during the three months to the end of September, with the latest figure up on the £5.77 billion injection recorded during the second quarter of the year.

But today's figure remains slightly down on the peak seen during the first quarter of 2009, when the economic downturn and falling house prices led to homeowners injecting £6.71 billion back into their properties.

Howard Archer, chief UK and European economist at IHS Global Insight, said: "The 10th successive, and increased, net injection of housing equity in the third quarter indicates that there is an ongoing desire and perceived need of many people to improve their personal balance sheets given high debt levels and serious concerns and uncertainties over the economic situation.

"Furthermore, extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages."

Equity withdrawal enables homeowners to cash in on rising house prices by increasing their mortgages to convert some of the rise in the value of their home into cash.

The money is typically used to fund big purchases such as cars or home improvements, or for debt consolidation.

But while people feel confident about increasing the size of their mortgage debt when house prices are booming, they are far less inclined to do so when the outlook for the property market and employment is uncertain.

The housing market downturn has also left many people with insufficient equity in their homes to withdraw money, while the credit crunch has made it harder for people to increase the size of their mortgage due to the tighter lending criteria banks and building societies now apply.

The recent trend among homeowners to pay down their mortgages contrasts with their behaviour during the housing boom, when they unlocked a record £17.1 billion during the final quarter of 2003.

But while people's focus on paying off their debts may be more prudent than tapping into their housing wealth to supplement their spending, it is bad news for the economic recovery.

The latest figures show that households spent the equivalent of 2.4% of their post-tax income on reducing their mortgages.

This is a far cry from the final quarter of 2003, when people boosted their income by around 8.5% through releasing money that was tied up in their homes.

Mr Archer said: "Housing equity withdrawal has been used significantly to support consumer spending in recent years.

"Consequently, the ongoing - and increased - net injection of housing equity is adding to the constraints on consumer spending including high unemployment, negative real wage growth and high debt levels."

Benjamin Williamson, senior economist at cebr, said: "Today's large negative figure for housing equity withdrawal is the result of homeowners rebuilding their savings, in the same way that we have seen monthly repayments in unsecured lending over the last year.

"For more than two years now homeowners have been investing more in their properties than they have been taking out in new secured loans, injecting nearly £50 billion into housing equity since the second quarter of 2008. We expect this consumer de-leveraging to continue well into 2011 and beyond.

"Ultimately it will be to the long-term benefit of the housing market and the stability of the economy, although it will mean a shortage of finance for consumer spending in the short term."

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