Mortgage repayments rise as consumers cut debt
New data from the Bank of England suggests that house owners are focusing on repaying their mortgages as part of their efforts to reduce debt.
Consumers are concerned about the state of the economy and their incomes are under pressure from pay freezes, rising unemployment and high levels of inflation.
These pressures, together with falling house prices, are contributing to a trend for households to cut spending and reduce their borrowings.
A record £9.1 billion of mortgage repayments were made in the second quarter of year, representing 3.5% of households’ post-tax income.
The amount of money owned on mortgages has fallen by £92.9 billion since the 2008 credit crunch.
In contrast, during periods when house prices are rising, consumers tend to withdraw equity from their homes.
In late 2006, when the property market was booming, mortgage equity withdrawal represented 5.6% of households’ post-tax income.
Alongside general economic gloom, the current low level of return on savings also means householders are less likely to take equity out of their property.
With the Bank of England keeping its base rate at a historic 0.5% low, many people are using any spare cash they may have to reduce their mortgages rather than saving it.
However, the latest figures from the Building Societies Association show that mortgage lending by building societies and other mutual societies increased by 20% last month to £2.3 billion.
Savings balances also grew, to £0.4 billion in October, compared with an outflow of £1.1 billion in October 2010.
Adrian Coles, Director-General of the Building Societies Association, said: “This improvement is likely to be because of the cash savings accounts on offer at mutuals which provide security that equity investments cannot in these uncertain times.”
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