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Homeowners free up equity for spending sprees

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02/04/2007

The Bank of England has released figures showing that more people are borrowing money against the value of their homes rather than making a saving and investment in them.

Homeowners released around £14.6bn in the last three months of 2006 through mortgage equity withdrawal, which totalled £49.7bn for the year compared to £36.6bn in the previous 12 months.

“This massive withdrawal suggests that High Street spending could be very robust indeed this year,” said City analyst Colin Perry. “My analysis is that the money will support consumer spending, despite the recent interest rate rises and dearer mortgages, and that saving and investment will go by the board.”

But Perry warned: “There is no such thing as a free lunch, of course, and homeowners would do well to remember that the property market is not guaranteed to keep rising and that their mortgages will be bigger if they go down this route, thus exaggerating the effect of future rate rises.

“It may seem like milk and honey now, but consumers need to weigh up their outgoings with their wealth and make informed decisions on a realistic basis. Flogging off all or a lot of your equity for a short-term spending spree may not always be the best way.”

 

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