by Mark Johnston
Households pay more off their mortgages!
It seems that with house prices subdued for the time been and borrowers nervous about their jobs, repayments are now outstripping new loans.
When the property market was booming, before the credit crunch, many households were actively withdrawing money from their homes, through remortgages and secured loans, mainly for holidays and large purchases. In 2003 home owners unlocked a record £17.03 billion in equity.
Therefore, recent figures have highlighted how consumers have changed their shopping habits since the late 1990s and early 2000s, as since the credit crunch consumers have been encouraged to become more prudent with their money.
It appears that the extremely low savings interest rates seen in recent times have undeniably made it much more attractive for many people to use any spare funds that they have to reduce their mortgages.
Jonathan Harris, the director of mortgage broker Anderson Harris, said “Where households do have surplus funds there are signs that they are overpaying on the mortgage, particularly as savings accounts are paying such poor rates of interest,”
Current figures from the Bank of England have revealed that home owners in the UK reduced their mortgage debt by £8 billion during the third quarter of 2012 as the country battled to put its finances on an even keel.
These same figures from the Bank of England also showed that home owners paid off far more than they borrowed in the third quarter of 2012.
ONE third of mortgages taken out since 2005 have been overpaid, the Council of Mortgage Lenders (CML) has found.
Howard Archer, chief UK economist at IHS Global Insight, stated that “the paying off of mortgages suggests there is an ongoing strong desire of many people to improve their personal financial balance sheets”.
Dominic Hennessy, managing director of home loan broker Just Us Mortgages, added: “The days of regular house moves and remortgaging are well and truly over. People are stockpiling cash and reducing debt, not adding to it”.
Although some experts feel that the trend is down to homeowners being unable to remortgage rather than a drive to pay off debt. These experts believe that it is not that people are aggressively paying down their mortgage debt but rather that they have no choice but to do otherwise due to low or zero equity.
It has become more difficult for people to increase the size of their mortgage after banks and building societies tightened their lending criteria in the wake of the credit crunch
While all this maybe true analysis also show that there have been signs that families are making an active effort to pay down their mortgage debts to take advantage of record low interest rates.
The British Bankers Association (BBA) said that consumers are continuing to act ‘conservatively’ in the weak economic environment, by paying down their debts and building up their savings.
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