Families put big spending on hold to pay off their mortgages

BRITISH households reduced their mortgage debt by £8billion over the autumn as the country battled to put its finances on an even keel.

Figures from the Bank of England yesterday showed that homeowners paid off far more than they borrowed in the third quarter of 2012. It was the 18th quarter in a row that mortgage debt has fallen, and families have now ploughed £137.5billion of equity into their homes since early 2008.

The injection of equity – which increases the proportion that households own against the proportion that is mortgaged – is in stark contrast to the borrowing binge of the decade before the financial crisis struck.

Families unlocked billions of pounds from their homes, often in the form of remortgaging and other loans tied to their property, between 1997 and 2008 to fund large purchases such as cars, holidays or home improvements. But with house prices subdued and borrowers nervous about their

‘Reducing debt, not adding to it’

jobs, repayments are now outstripping new loans.

Howard Archer, chief UK economist at IHS Global Insight, said the paying off of mortgages ‘suggests there is an ongoing strong desire of many people to improve their personal financial balance sheets’.

It has long been thought that the shift was the result of homeowners taking advantage of ultra-low interest rates to pay off their mortgages. But the Bank of England report put it down to the low level of house sales since the start of the financial crisis, as nervous would-be buyers hold off and firsttime buyers struggle to get loans to get on the housing ladder.

Mr Archer said the new trend was seriously holding back consumer spending and therefore the economic recovery. ‘In past years, housing equity withdrawal has been used significantly to support consumer spending,’ he said.

Dominic Hennessy, managing director of home loan broker Just Us Mortgages, added: ‘The days of regular house moves and remortgaging are well and truly over. People are stockpiling cash and reducing debt, not adding to it.’