Mortgage equity withdrawals at £11.8 billion in Q4 2005 |
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Wed, 05 Apr 2006 12:35
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LONDON: Britons withdrew some 11.8 billion pounds by way of mortgage equity in the fourth quarter of 2005, which is up from 8.9 billion pounds in the previous quarter, according to official data. This is the highest since the third quarter of 2004 and similar to trends seen during the property boom periods of 2003 and 2004.
The fourth quarter figure equals 5.6 per cent of disposable income, up from 4.3 per cent in the third quarter.
The figures, compiled by the Bank of England, indicate that rising house prices in recent years is encouraging people to refinance mortgages so that they can have access to cash. Mortgage equity withdrawal had reached a peak of 8.9 per cent of post-tax income at the end of 2003. This had triggered a growth in retail sales.
However, this growth had slowed down over 2005 because of heavy debt burden -- overall borrowing currently estimated around a trillion pounds -- even as house prices started declining.
Economists expressed concern that people are now tending to go back to the borrowing culture in order to keep spending.
Analysts feel this could a be trend that the central bank will be watching in deciding on the interest rates. It will see this as evidence that confidence in the housing market is picking up, which can reduce the need for any interest rate cuts.
Some analysts warn that the cash derived from this withdrawal need not be routed to spending. They argue that it can be used for purposes other than funding consumer spending, such as reducing debts, investing in other financial assets and topping up pensions.
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No change in bank interest rates 