UK Home-Owners Repay Less Mortgage Debt as Economy Continues to Recover

The latest figures from the Bank of England on housing equity withdrawal showed that UK home-owners made the smallest collective net repayment in the third quarter of 2015 in almost six years.

UK home-owners made a net mortgage repayment of £8.8 billion between July and September 2015, the smallest repayment since the fourth quarter of 2009. That compares with a net repayment of £12.2 billion in the second quarter of 2015 and £13.7 billion in the third quarter of 2014.

These data monitor the financial behaviour of owners of UK properties. They can also give an indication of sentiment among home-owners and are a loose leading figure on possible future spending and savings trends.

Under the last Labour Government – before the 2008 credit crunch – home-owners in their droves were re-mortgaging their homes which had soared in value, and taking out some of that increased equity in order to power their spending. Those purchases ranged across the board from a pair of designer shoes, to a holiday home or buy-to-let property, a new car or a holiday-of-a-lifetime.

It was this behaviour – withdrawing equity which had built up the value of property – which helped power the consumer spending driven economic boom during that time. Then the credit crunch hit, interest rates were slashed and almost at once attitudes and behaviour changed. Instead of taking money out of their properties, home-owners were treating them as a nest egg and repaying their mortgages, often overpaying where possible.

In the first quarter of 2008 home-owners withdrew £11.8 million in equity from their properties. In the second quarter of the same year, a net repayment of £6 billion was made, the first collective net repayment since 2000.

Since that repayment between April and June 2008, home-owners have continued to pay money into their properties rather than withdraw it. That’s because when the economy is faltering, job creation stalls, earnings growth slows and people worry about money and feel less wealthy.

Fast forward to 2015 when the economy has grown for almost six consecutive years, employment is rising and, critically, earnings growth is showing signs of recovering. Against this backdrop Britons are beginning to feel a little more confident about the UK’s economic prospects and their own personal wealth.

This improving sentiment has also been underpinned by rising house prices. That combination of improved earnings growth and an ongoing accumulation of personal wealth in the form of property is now beginning to make home-owners feel wealthier once more. What’s more, industry experts expect house prices to rise further in 2016, while economists are also forecasting the economy to expand at a similar rate in 2016 as it did in 2015.

While the latest BOE equity withdrawal figures point to some positive developments – confidence returning among home-owners to name one – it should also serve as a warning. Home-owners withdrawing equity from the rising value of their homes and using that money to fuel spending is a trend that preceded the credit crunch and isn’t really something the Bank of England is likely to be too happy about.

The Bank of England and the Financial Policy Committee will no doubt be monitoring the situation very closely and will hopefully be open about any concerns they have over the coming months.


Bank of England Q3 HEW data

Office for National Statistics GDP data