Financial News

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British homeowners poured a record £8.14bn into paying down their mortgage debt during the first quarter of the year, latest figures show.

Falling house prices and the wider downturn have put people off taking money out of their property, leading to equity withdrawal being negative for the fourth quarter in a row.

The rate at which people are repaying their mortgages has also continued to accelerate compared with the final quarter of last year, when home-owners made net mortgage repayments of £7.76bn, according to the Bank of England.

Homeowners' focus on paying down their mortgages is in stark contrast to figures for the same period of last year, when people released £6.73bn from their properties to fund large purchases.

But even that was a far cry from the record £17.1 billion of equity that was unlocked during the final quarter of 2003.

While people's focus on paying down their debt may be more prudent than tapping into their housing wealth to supplement their spending, it is bad news for retailers.

Equity withdrawal accounted for 2.9% of people's post-tax income during the first quarter of 2008, but during the first quarter of this year, they spent the equivalent of 3.5% of their pay paying down their mortgage.

This turnaround is likely to have contributed to the fall in consumer spending seen during the first three months of the year.

Figures from the Office for National Statistics earlier this week showed the first quarter saw the biggest drop in household spending since 1980.

Equity withdrawal enables homeowners to cash in on rising house prices by increasing their mortgages to convert some of the rise in the value of their home into cash.

But people are far less inclined to do so when property values are falling and unemployment is rising.

House price falls of more than 20% since the market peaked in July 2007 mean many people no longer have sufficient equity left in their property for them to withdraw.

Even if they do have equity, tighter lending conditions make it harder and more expensive for people to extend their mortgage.