Borrowers pay off £8bn of mortgage debt

Just over £8bn was paid off the UK's collective mortgage debt in the third quarter of 2012 as repayments continued to outstrip new borrowing.

Figures from the Bank of England showed that households continued to inject housing equity, rather than withdrawing it, for the 18th quarter in succession, although the level had dipped from £9.4bn in the second three months of 2012.

In the decade to 2008, when the property market was booming, households were actively withdrawing money from their homes, through remortgages and secured loans. In the final quarter of 2003 alone, £15.5bn was withdrawn from property equity, while in the year to March 2007, each set of quarterly figures topped £11bn.

The Bank said the decline in housing equity withdrawal was not associated with an increase in repayments of secured debt, but lower sales and a reduction in remortgage activity.

A combination of low standard variable rates for borrowers who have finished a special rate on their mortgage, and changing criteria which have left some unable to switch to new deals, has kept remortgage levels low in 2012.

While the housing market has shown some signs of life in recent months, lenders have reported that switching levels remain low, with the Council of Mortgage Lenders latest figures showing remortgage numbers down by almost 14% year-on-year in October.

Jonathan Harris, the director of mortgage broker Anderson Harris, said borrowers who wanted to withdraw equity from their property had struggled to do so since the start of the financial crisis.

"It has become much harder as lenders rein back on the maximum loan-to-values they will allow and charge higher rates of interest on smaller equity stakes," he said.

"With property values falling in many parts of the country, it is proving undesirable to increase the debt against the roof over your head."

Harris said making overpayments was also difficult for borrowers, with the high cost of living and rising unemployment paying a part.

"Where households do have surplus funds there are signs that they are overpaying on the mortgage, particularly as savings accounts are paying such poor rates of interest," he said.

Housing expert Henry Pryor said the figures highlighted how consumers had changed their shopping habits since the late 1990s and early 2000s when housing equity was being used to fund the purchase of white goods, new cars and other discretionary spending.

"Since the credit crunch consumers have been encouraged to become more prudent and whilst the government continues to print money it doesn't have to stimulate the economy it appears that the fiscal fright that many people had after the collapse of Northern Rock and the austerity measures that the coalition government have introduced has convinced people that we need to be saving rather than spending," he said.

Howard Archer, chief UK economist at IHS Global Insight, said housing equity withdrawal had been "used significantly" in the past to support consumer spending. While the injection in the third quarter of 2012 was worth 2.9% of post-tax income, equity withdrawal reached 5.7% of post-tax income in the fourth quarter of 2006.

Archer said: "Regardless of the causes of the switch to a net injection of housing equity since early-2008, the fact that housing equity withdrawal is no longer happening is a dampening factor on consumer spending."