Housing Equity Withdrawal is -£23.5m in the last year

The Bank of England announced yesterday that Housing Equity Withdrawal in the first quarter of 2009 was -£8.1bn. This figure has now been negative for 4 quarters, rising each quarter, although the figure for the first quarter of 2009 is only 4.9% higher than the last quarter of 2008. The total amount that borrowers injected into their housing equity over the 12 months to 31/3/09 is a massive £23.5bn., which is 1.9% of outstanding residential mortgage balances. Very few people have been taking further advances in the current climate, and some who wanted to will have been declined by their lender, often because they no longer have enough equity in their property. In addition many borrowers, especially those on trackers, will have found it easier to make overpayments because of lower interest rates. Thus the gross amount of equity withdrawal will not only have been very low but will also have been dwarfed by scheduled capital repayments and overpayments. The savings ratio in the U.S. has increased significantly since the credit crunch but that has not happened in the U.K. This is probably at least partly because people are sensibly choosing to repay debt instead. Although sensible from an individual perspective it does mean that consumer spending is reduced and so will delay a recovery in the economy. Banks and building societies, especially the latter, are complaining about the lack of savings resulting in them not having much money to lend on new mortgages. But whether people save or overpay on their mortgage the money still goes to the bank or building society. Therefore we should be looking at the Housing Equity Withdrawal figures and the savings figures together to assess how cash strapped lenders are.