A recent report issued by the Bank of England indicates that the amount of money “unlocked” from property during the second quarter of this year stands at -£2.76 billion - the first negative number measured on the survey since 1998. This means that more equity was put in to property than withdrawn from it over the three-month period.
This rise in equity is also the highest since the Bank started taking records thirty-eight years ago.
This cautious attitude among homeowners can be connected to the recent decline of the UK housing market. A recent report from Nationwide, indicates that house prices have decreased for the past eleven months in a row, and are currently around 12 percent below the height of the market last year.
Lenders have also seriously reined in their criteria for borrowers applying for credit – including secured loans- due to the credit crunch, which has worsened recently with the nationalisation of Bradford & Bingley and the takeover of HBOS. Property equity withdrawals over the first quarter this year was £5.24 billion.
The Bank of England’s Credit Condition report shows “expectations for house prices and concerns about the economic outlook” led banks and building societies to reduce the amount of mortgages available. Over the next few months the mortgage crunch is widely expected to get worse as wholesale funding conditions also tighten and banks lose their appetite for risk. Unsecured credit – the form of personal loans, credit cards and overdrafts – also diminished.
The Bank of England also revealed demand for mortgages and remortgages “declined sharply” over the three months and demand was expected to fall further. The survey of lenders also revealed rises in default rates on mortgages and loans and higher levels of people unable to repay their debts is expected as the economy continues to struggle.
