by Mark Johnston
Bank of England figures revealed a startling fact recently; borrowers and homeowners managed to repay more of their loans during 2010 than they had done during any other time.
Official figures showed that since records began in 1970, people with mortgages paid off more in 2010, to the tune of £24 billion in loans, than they did in any year since records began. The Bank started collating these figures to monitor trends and one interesting point is that during the last quarter of last year, more than £7 billion was paid back. These figures included the fragile sector of initial deposits for first time home buyers. Still, £7 billion is an enormous amount when you consider the depth of the recession and peoples spending habits over the Christmas period.
Drawing money out of your mortgage, more over, increasing your loan based on homeownership is known as drawing equity from your home. £328 billion extra capital has been borrowed in this way in the ten year period of July 1998 and March 2008. Homeowners have drawn money out of their mortgages to pay for holidays, a replacement car, fixing up the house or extension work – sometimes increasing the value of your house considerably.
However, in recent years, as mortgage deposits have gone up. Gone are the heady days of 100 per cent mortgages and the Interest only mortgage is looking more and more likely to be axed as a responsible method to lend money. Households have been tightening up their budgets and act a little bit more responsibly.
The Bank of England recently met and decided, eventually, to maintain the 0.5 per cent base interest rate. This per cent rate has been maintained for two years now and the Monetary Policy Committee cited continued impacts on inflation and pressures herein. The Bank will hold out on increasing this rate until May or June when the economic picture becomes a little clearer.
The debate on the rate, as Mervyn King sees it, is around whether maintaining the temporary pressures on inflation will assist the economy or whether the alternative of tighter rates may very well choke the recovery to death. Again, analysts and experts in this area believe that higher rates could very well derail the economic progress that is taking place.
Homeowners, it would appear, have been taking advantage of the lower interest rates and have chosen to repay more of their loans. Repaying more of your loan can cause you to incur an early repayment fine on some mortgages but clearly many people have taken advantage of mortgages that don’t put too heavy a fine on over payments.
First time buyers have been stung by higher loan to value rates. Generally lenders are now expecting between 20 and 30 per cent deposits, pricing most FTB’s out of the market. This will, obviously increase the initial financial stake any FTB has in their home.
Chief UK and European economist at HIS Global, Howard Archer, said “Extremely low savings rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages,”
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