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UK homeowners repaid a record amount of mortgage debt in the first three months of the year as the recession reversed the borrowing binge of the past decade.
Bank of England figures showed £8.1 billion of mortgage debt was paid back in the first quarter, more than the £7.8 billion in the fourth quarter of 2008 and the most since records began in 1970.
It was the fourth quarter in a row of net repayments and marked a sea-change in attitude from the previous 10 years when rising house prices effectively turned homes into cash machines as owners took out extra mortgages to fund spending.
Falling house prices and unemployment fears have put people off borrowing extra cash against their homes and convinced them instead to significantly reduce their debts.
But while people's focus on paying down their debt may be more prudent than tapping into their housing wealth to supplement spending, it is bad news for beleaguered retailers. It is likely to have contributed to the fall in consumer spending in the first three months of the year.
Official figures this week showed the biggest drop in household spending since 1980 in the first quarter. The credit crunch has also led to banks and building societies tightening their lending criteria, making it more difficult and expensive for people to extend their mortgage.
Howard Archer, chief UK economist at IHS Global Insight, said: “a net injection of equity over the past year has added to the downward pressure on consumer spending.”
Catherine Matthews, a partner at insolvency firm Tomlinsons, said: “This process is good news for homeowners but bad news for the average UK business, which is being strangled by fragile consumer confidence and limited spending on the high street. The result is a Catch-22 situation where people won't start spending until the economy and housing market recover and they feel more confident, but the economy and housing market won't recover until people start to spend.”
Reader views (5)
So, the savers and the thrifty are paying the bill for the borrowers and the lenders. I, for one will not forget that my savings are now nearly worthless. Keith Price as a dyed in the wool socialist brain washed fool thinks it is a good thing. Roll on the election!
- Frederick, London
what a load of old tosh the reporter whinges about ,..the "poor" mortgage payer,..get real mister.
My ex girlfreind lives in a 100,000 quid 3-bed semi,,.cohabits,.never worked in 20 years..and get incapacity benefit each week for the past 20 years,..
She claims she cannot walk more than 50 yards without getting breathless,...yet she goes on roller-coaster rides in Alton Towers, Blackpool Big-Max ride
what an easy cushy parasitic lazy life on the dole in Britain,..sit on your butt all day like her,..and get the taxpayer to foot your mortgage bill. No wonder Britain is full of parasitic dole scroungers, asian, muslim con-merchants etc all pulling the same con-trick
no wonder the UK is bankrupt & rotten to the core
- A Brown, London
Keith Price - Some very sensible people (like me) are taking the opportunity to overpay their mortgage each month and reduce the outstanding balance whilst rates are low.
Remember, rates are only low to compensate for the deeper recession created by labour's miss-management of the economy.
Keith - The OECD concur!
- Dave Davies, Basingstoke, Hants
Well done Gordon Brown for getting the economy into far better shape to cope with the worldwide economic recession
- Keith Price, Luton, England
Retailers suffering? Well, stuff `em. I for one (and millions like me) won't be spending a penny on big ticket items until the banks hands back the interest payments on our savings which they stole from us in order to subsidise profligate houseBUYERS.
- Ted, London
