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People still paying down mortgages

Sarah Davidson

October 3, 2012

Housing equity withdrawal as a percentage of post-tax income was -3.6% in 2012 Q2, in line with the figure for 2012 Q1.

The negative figures indicate a continued injection of housing equity by households overall, with the net flow of lending secured on dwellings remaining weaker than their investment in housing.

The flow of secured lending remained positive at £1.3bn more than Q1 2012.

The Bank said the decline in HEW – and move to injections of housing equity – since the start of the financial crisis has not been associated with an increase in repayments of secured debt.

It said gross secured loan repayments have fallen since that time, which has reflected both lower housing market activity and a reduction in remortgaging and it said the fall in housing equity withdrawal since the financial crisis is likely to reflect a fall in the number of housing transactions, with little sign that households in aggregate are making an active effort to pay down debt more quickly than in the past.

Housing equity withdrawal is classed as the balance of effects on the stock of housing equity from changes in the stock of secured lending when households take out or repay debt and changes in the stock of housing wealth, e.g. when new properties are built or improvements are made to existing properties.

The stock of housing equity can also change as a result of revaluations of the stock of housing wealth due to changes in house prices, but this is not included in HEW.

Ashley Brown, director of independent mortgage broker Moneysprite, said: “It’s not that people are aggressively paying down their mortgage debt but rather that they have no choice but to do otherwise due to low or zero equity. Insufficient or even negative equity mean people are stuck with whatever rate they’re on.

“For the long-term health of the economy, the deleveraging of households is a positive but there’s no doubt that this is causing pain to business. If the turmoil of the past five years has taught us one lesson, it’s that our castles can no longer be treated as cash machines.”


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