by Mark Johnston
Sustained low interest rates and an uncertain future are driving many UK home owners to over pay their mortgages whilst they can still afford to do so.
A report published recently shows that homeowners in the UK are continuing the trend of paying down their outstanding home loan balances at an accelerated rate. Savvy home owners have reduced the outstanding debt attributed to home loans again in the third quarter of the year. It was the tenth consecutive quarter that the debt was reduced. The total outstanding debt was reduced by £6.1 billion which is the largest reduction since the start of 2009.
Chief UK and European economist at IHS Global Insight, Howard Archer said: “The 10th successive, and increased, net injection of housing equity in the third quarter indicates that there is an ongoing desire and perceived need of many people to improve their personal balance sheets given high debt levels and serious concerns and uncertainties over the economic situation. Furthermore, extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages.”
Last month gross lending increased slightly but borrowers taking advantage of the low interest rate drove the net figures down due to them paying back larger proportions of their loans.
This trend to pay off consumer debt was backed up with new figures showing a reduction in credit card and personal loan balances. The figures were published by the British Banking Association (BBA) and showed that borrowers had paid back more debt that was lent which resulted in a reduction in the overall outstanding consumer debt in the UK.
Mr Archer went on to say: “The further net repayment in consumer credit in November indicates that consumer appetite for taking on new borrowing remains limited while there is an ongoing desire of many consumers to reduce their debt,”
Commercial lending to business increased by around £500 million although it had been in decline so it was welcoming news to many companies who have been starved of credit which has made it difficult to grow in recent years.
“The marginal rise in net lending is a move in the right direction,” Mr Archer said. “However, it does not materially ease concerns that on-going tight credit conditions are still a significant handicap to economic activity, particularly for smaller companies.”
This all adds to the increasing unease of the UK mortgage market. With mortgage approvals at less than half of the 60,000 a month seen back in 1997, experts are now concerned that we may be on the precipice of a mortgage market collapse.
Although the rate at which borrowers paid back their mortgages increased in the thirds quarter, the figures are slightly down when compared to the start of 2009 when the low interest rate, uncertain future and potential house price crash forced borrowers to repay £6.71 billion of their outstanding debt.
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