Equity withdrawals plummet by 64%
According to figures from the Bank of England, the amount of money homeowners are borrowing on their houses has plummeted by 64% in the first three months of 2008.
Housing equity withdrawal, which is when homeowners take out larger mortgages to spend on things other than their home, fell to £5.043 billion.
The figure represents the lowest since 2001 as the tightening of lending criteria means mortgages are harder to obtain.
Over recent years, as the value of people’s properties escalated, billions of pounds have been extracted.
Since 2000, UK homeowners have borrowed approximately £311 billion via this method. However, the trend is expected to decline as property prices continue to fall.
Commenting on the figures, Howard Archer, chief UK and European economist at Global Insight, said this will add to the mounting pressure on consumer spending already coming from modest disposable income growth, rising utility bills, elevated food prices, tighter lending conditions, higher mortgage rates, increased debt levels, tighter and, now, rising unemployment.
Earlier this week, the latest survey from the Nationwide revealed that house prices fell by 0.9% in June. This is less than half the 2.5% fall experienced in May.
The Nationwide said that the average UK house price is now £172,415, which is 6.3% lower than in June last year.
The lender believes it is unlikely that there will be any rapid turnaround in housing market fortunes over the next few months.
Many analysts have forecasted that property prices will continue to fall throughout this year, with some predicting drops in double-digits.
Furthermore, other data from the Bank of England revealed that 42,000 home loans were approved in May, which is a 27% decline compared with April and represents a 64% fall compared with a year ago.
The Bank said the figures were the lowest since it began recording the data in 1993. The figures were also lower than many analysts’ expected.
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