Housing equity withdrawal down £8.6bn in Q4

HEW as a percentage of post-tax income was -3.1% in 2012 Q4, compared to -2.9% for 2012 Q3.

The negative figure indicates a continued injection of housing equity by households overall, with the net flow of lending secured on dwellings remaining weaker than their investment in housing.  The flow of secured lending remained positive.

The decline in HEW – and move to injections of housing equity - since the start of the financial crisis has not been associated with an increase in repayments of secured debt.  Gross secured loan repayments have fallen since that time, which has reflected both lower housing market activity and a reduction in remortgaging. An article in the 2011 Q2 Quarterly Bulletin explains that the fall in housing equity withdrawal since the financial crisis is likely to reflect a fall in the number of housing transactions, with little sign that households in aggregate are making an active effort to pay down debt more quickly than in the past.

Mark Harris, chief executive of mortgage broker SPF Private Clients, says:

"Lending conditions are slowly easing with an increase in the number of mortgages available over the past three months, a trend expected to continue in the next quarter. Demand from borrowers for mortgages rose and is expected to rise even more significantly in the next quarter, both in the mainstream market and for buy-to-let loans. There were more options for those borrowing more than 75 per cent LTV, which is encouraging, but there need to be further still, at even better rates. In an encouraging sign that it is not just about the mortgage rate war, the Bank reported that maximum LTV and loan to income ratios have increased slightly. However, credit scoring remained as tight as ever, with the number of applications being approved falling slightly, suggesting that there should be room for further easing.

"Lenders expect mortgage rates to fall further in coming months as funding costs continue to fall, mainly as a result of the Funding for Lending Scheme. Those on the look out for a cheap mortgage in coming months are therefore unlikely to be disappointed.

"In these uncertain economic times, it would make sense that homeowners would overpay on their mortgages in order to reduce the balance more quickly, particularly if they have an interest-only mortgage, but this is not happening. Instead, the reduction in housing equity is down to fewer mortgages being taken out and less remortgaging, than homeowners reducing their debt. This is likely to be down to the rising cost of living and the fact that many households are struggling with costs, with few in a position to overpay on their mortgage."

Chris Love, director of independent mortgage broker, Mortgage Simplicity, commented:

 "Housing equity withdrawal in the fourth quarter of last year, like so many quarters before it, was always going to be negative. It's hard to take equity out of your home if you have none of it, or very little. Lender criteria just won't allow it.
 
"Likewise, people are no longer moving home as much, which is a natural catalyst for equity withdrawal. Long gone are the days when your property was a cash machine. In fact, today we look back at those days, the endless summer of remortgaging, with a degree of disbelief.
 
"These days people's mentality has changed, too. Homeowners are focused on increasing the equity in their homes, not living like a Rolling Stone. They also understand that the more equity they have in their homes, the better the rate they will get, and the less stringent the criteria. In five or six years, we have witnessed a phenomenal volte face."