Mortgage Debt Falls To Record Lows

With the recession previously having left a number of Brits struggling for cash, recent figures have shown that the ongoing reductions in interest rates have now left a positive outcome for homeowners as the level of debt falls to a record £23 billion.

According to figures by the Bank of England, homeowners have reduced their mortgage debt to an estimated record amount of £8.1 billion during the first three months of the year - the highest since 1970 when the figures were first recorded.

The total amount repaid reached £23 billion for the year to the end of March.

These figures compare to the same period last year, where £6.7 billion was released from their properties as more Brits took out loans and remortgages in order to obtain finance for other purchases.

Sky high borrowing

Within the three months between October and December 2003, the amount of borrowing from homeowners soared by £17.1 billion. Yet now, more Brits are focused on repaying their debts.

According to the national paper, the Daily Mail, the threat of unemployment as a result of the recession has left an increasing number of homeowners putting more priority on repaying their mortgage mortgage debts instead of saving due to the ongoing reductions of interest rates.

Ray Boulger, of a mortgage broker firm, agreed saying: "Although savings are still low, this appears to be at least partly because people are sensibly choosing to repay debt instead."

Economist Howard Archer, of Global Insight said: "Ever lower savings rates have made it increasingly more attractive for many people to use spare funds that they have to reduce their mortgages."

Other areas will stuggle

However, according to analysts, although the move acts as a positive aspect to homeowners, other areas of the economy will now struggle.

Archer added: "Housing equity withdrawal has been used significantly to support consumer spending in recent years.

Consequently, the sharp turnaround from substantial withdrawals up to and including the first quarter of 2008 to a net injection of equity over the past year has added to the downward pressure on consumer spending."

Simon Rubinsohn, of the Royal Institution of Chartered Surveyors said: "This is not a surprise given the fall in house prices over the period, and will have contributed in no small way to the weakness in High Street spending.

There have been some tentative signs of a stabilisation in the property market, but it is improbable that housing capital, in the near term, will be viewed as a source of wealth that can be drawn down by homeowners to supplement their income."

Catherine Mathews, of insolvency practitioners Tomlinsons added: "This is good news for homeowners but bad news for the average UK business, which is being strangled by fragile consumer confidence and limited spending on the High Street."

And while interest rates remain low, the amount of mortgage debt is expected to plummet as even more Brits pay closer attention on repaying their mortgages.

Mr Rubinsohn added: "We expect consumer spending to remain relatively subdued over the remainder of this year."

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