UK homeowners prefer to pay mortgage than spend

Official figures show that UK homeowners are no longer using their property equity to fund spending, the BBC reports.

Quarterly figures from the Bank of England for July to September have revealed that housing equity withdrawal has been negative for the second successive period, showing that homeowners are now concentrating on paying their mortgages instead of using their property to release cash for spending.

The last few years have seen consisitently high figures for housing equity withdrawal, as homeowners release ready cash by taking out bigger mortgages. Figures from the first three months of 2008 show that £11.1bn was withdrawn, in stark contrast to the £5.7bn of equity put back into homes in the third quarter.

The dramatic reversal in borrowing and spending behaviour could be put down, in part, to the drop in house prices and banks' increased caution in lending. Mortgage approvals have decreased 60% compared to a year ago, according to the British Bankers' Association figures for November.

Howard Archers, chief UK and European economist at IHS Global Insight, said that housing equity withdrawal had 'been used significantly to support consumer spending in recent years'.