Homeowners shoring up capital

egg in basket

The looming recession and lack of mortgage credit have led to homeowners injecting £5.7 billion into their properties in the third quarter of 2008.

The Bank of England’s housing equity withdrawal figures, released every three months, normally show the amount of money released from people’s homes. However, in quarter two and three of 2008 the figures show more people have been injecting capital through overpayments than withdrawing it.

In quarter two -£1.9 billion was withdrawn, increasing to -£5.7 billion in quarter three. In comparison, the third quarter in 2007 saw £11.1 billion total housing equity withdrawal. This fell to £7.3 billion in quarter four of that year, before turning negative in 2008. 

Experts say the reversal in the way people treat the equity tied up in their property is a direct result of the credit crunch, and could indicate concerns about what the future holds. However, it is also a reflection of the lack of available and cheap mortgage credit, which has prevented many people from being able to release money from their homes.

Andrew Montlake, partner at independent mortgage broker Cobalt Capital, says: "Not so long ago, an Englishman's house wasn't just his castle, it was his cash machine, too. This, very clearly, is no longer the case.”

Falling house prices are also a key reason for negative housing equity withdrawal. “Of course, many people can't take money out of their homes even if they want to —  any equity they had has either been wiped out altogether or seriously eroded by falling house prices,” explains Montlake.