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Homeowners reduce mortgage debt

05/01/2010

According to figures released by the Bank of England, UK homeowners reduced their outstanding mortgage debt for the sixth quarter in a row between July and September - paying off £4.9bn of secured debt - the Telegraph reports.

The figures contrast strongly with those of previous years, when many homeowners released equity from their properties - often to fund large purchases.

The rate at which homeowners unlocked equity from their homes peaked during the final three-month period of 2003, when £17.03bn was released. Since the second quarter of 2008, when homeowners stopped withdrawing equity, a total of £33.89bn has been knocked off mortgage debts.

Withdrawing equity from a property allows people to take advantage of rising house prices, increasing their mortgage debt but converting some of the rise in the value of their home into cash. And as the Telegraph reports, this money is `typically used to fund big purchases such as cars or home improvements, or for debt consolidation`.

The paper goes on to say that while many people will be happy to increase their mortgage debt when house prices are rising, they are less likely to do so when house prices are falling and unemployment is on the rise.

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