Mortgage equity withdrawal kept families afloat

Mortgage equity withdrawal kept families afloat

New research from Durham University shows the extent to which some UK homeowners are exposed to the credit crisis because their lifestyles have been funded by withdrawing equity from property.

The study, which examined the borrowing patterns of over 8,000 households between 2001 and 2005, revealed that in any year around 40% of homeowners increased their mortgage borrowing, despite having not moved home.

The average rise was between £5,000 and £7,500 in a year.

However, the results show that the money was not spent on so called “champagne moments”, such as new cars and expensive holidays but was more likely to be used to support children, deal with a fall in income, or meet the costs of relationship breakdown.

According to Durham University’s Professor Susan Smith, the credit crunch is a welfare disaster for households that have previously relied on borrowing against the value of their homes to remain solvent.

Professor Smith suggests that the financial crisis could produce a crisis of welfare, as homeowners lose the option to transfer housing wealth into spending money.

She is predicting that the loss of the home as a family’s most significant asset base will drive more people into debt.

Latest figures from the Council of Mortgage Lenders show that in October remortgage approvals rose to 70,000 and were worth £9.4 billion, representing an increase of 12% in volume and 11% in value on September.

Annually both figures declined: by 31% for volume and 28% for value.

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