Economic uncertainty leads to £3.2bn loan payback by homeowners

HOMEOWNERS paid off £3.2 billion of mortgage debt in the first three months of the year as the uncertain economic outlook drove down spending levels.

It was the eighth successive quarter in which Britons increased the equity in their properties rather than withdraw money from their homes to fund spending, new Bank of England figures show.

However the rate of equity injection was down from 3.4bn in the previous quarter and less than half the level in the same period last year, when 7.3bn was paid off mortgages.

Prior to that there had been more than a decade of uninterrupted equity withdrawal as homeowners exploited rising house prices to fund their spending. In the past two years UK homeowners have put an extra 38.3bn in their homes, after withdrawing 87bn of equity in the previous two years.

Howard Archer, chief UK and European economist at IHS Global Insight, said the trend reflected a desire among consumers to improve their financial security in an uncertain economic climate.

"Furthermore, extremely low savings interest rates have made it much more attractive for many people to use any spare funds that they have to reduce their mortgages," said Archer.

"In particular, many people may be using the extra money that is resulting from their much reduced mortgage interest payments to reduce the balance that they still owe on their houses."