Latest data from the Bank of England indicate that people have stopped drawing money out of their mortgages and have started to pay off some of their existing debt.
Figures on Housing Equity Withdrawal (HEW – formerly Mortgage Equity Withdrawal) show that in Q2 2008 people actually started to pay off some outstanding debt rather than use their equity as a ‘cashpoint’ to fund other spending.
There was actually a net inflow into housing equity between April and June 2008 for the first time since 1998.
As recently as Q3 2007 homeowners had withdrawn £11 billion in mortgage equity.
How is HEW defined?
HEW occurs when lending secured on housing increases by more than investment in the housing stocks.
Investment comprises new houses, home improvements, transfers of houses between sectors, and house moving costs, such as stamp duty and legal fees.
So HEW measures mortgage lending that is available for people to use in whatever way they wish – perhaps to fund their next holiday, to buy a new car or to pay school fees.
Part of the overall slowdown
The HEW figures are another sign that confidence is draining from the economy and that people are acknowledging that the drop in house prices is impacting upon their wealth, therefore requiring more prudent behaviour.
During the current decade homeowners were withdrawing up to £57 billion per year (2003) to fund various spending as consumers acquired more and more equity with house prices continuing to rise rapidly.
Howard Archer, chief UK economist at consultancy Global Insight, said: “Higher mortgage rates, markedly tighter credit conditions and falling house prices have increasingly reduced the attractiveness of, and scope for, housing equity withdrawal, to the extent that householders made a net repayment in the latest quarter.”