Mortgage equity withdrawals crash as housing market remains flat |
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Fri, 08 Jul 2005 21:05
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With property prices refusing to surface from the doldrums, it was revealed that the amount of mortgage equity withdrawals in the first quarter fell so much so that the equity release touched its lowest ever level in a period of four years.
This could be the single simple reason why high street sales are dosn and the economy in general has taken a dive from the previous few years dizzy heights. With less free cash people cut back on luxury and essential goods although electrical goods and new cars as well as high street reatilers have all suffered from the unwillingness of the population to use their positive equity and splash out.
People were found pulling out about £6.42bn from their houses over the first quarter this year, against a more than half £15.93bn equity that was withdrawn last year in 2004 in the same time. In fact, this years’ figure of equity release has been recorded as the lowest in four years, ever since 2001’s third quarter.
Actually, in 2002 and 2003, equity release did receive a boom considering the upturn in house prices at that time and people were seen extracting money from their houses to enable the financing of big purchases as well as the consolidation of debt. However, the now dormant housing market understandable has little reason to attract homeowners to go in for adequate equity withdrawals.
Investec economist, Philip Shaw, commented on the low levels of equity releases and expressed hope for the resuscitation of mortgage equity withdrawal to £7.5bn in the quarter. In his words, “I think the figures were strangely weak, given that mortgage lending picked up a little bit over the quarter. It suggests there is perhaps less cash out there leaking from the housing market to support consumption.”
The mortgage equity withdrawals in the first quarter reflected about 3.1% of the homeowners’ post-tax income, which was lower than 4.1% recorded in the earlier quarter and quite miserable as compared to 8.1% in the first three months of 2004.
Chief economist, Howard Archer working with Global Insight said that consumer spending was fast depleting, “even though a Bank of England study last year suggested that mortgage equity withdrawal had played only a limited role in financing consumption.”
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