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Mortgage equity withdrawal falls

Tue, 03 Jan 2006
The amount of money people borrow against the value of their homes to boost their incomes, has fallen again.

Bank of England data shows that in the third quarter of last year mortgage equity withdrawal dropped by almost 19 per cent, to the second-lowest level for three years.

At 3.9 per cent of post-tax income, the amount of money people were withdrawing from their homes was 57 per cent down on the peak levels of late 2003.

These figures crushed hope that an increase in equity withdrawal in the middle of last year was a sign of things to come.

Howard Archer, chief UK economist at Global Insight said, "Mortgage equity withdrawal fell back in the third quarter of 2005, suggesting that the marked pick up in the second quarter was not the beginning of a renewed upward trend."

And with fewer UK residents cashing in on part of the money their home is worth, consumer spending could stay low for a while.

Mr Archer said, "The markedly reduced mortgage equity withdrawal since its fourth-quarter 2003 peak has undoubtedly weighed down significantly on consumer spending since mid-2004, even though a Bank of England study in 2004 suggested that mortgage equity withdrawal had played only a limited role in financing consumption.

"We believe that house prices are set to see only very modest increases for an extended period, and that mortgage equity withdrawal is consequently unlikely to return to anywhere near the peak levels seen in late 2003 for the foreseeable future.

"Therefore, it seems unlikely to provide a renewed significant stimulus to consumer spending. This reinforces our belief that consumer spending will remain relatively muted over the coming months," he added.
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