Britons pay off mortgage debts

Ben Southwood
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MORE than half of the mortgage debt accumulated during the credit bubble has now been paid back, figures out yesterday revealed.

Outstanding mortgage loans have now fallen for 19 quarters in a row even after five months of the Treasury and Bank of England’s (BoE) funding for lending scheme (FLS) trying to kick-start loans again.

Households paid down £8.6bn more secured debt than they took out between October and December last year, Bank figures revealed.

Combined with the previous 18 quarters of debt reduction, households now owed £145.5bn less than at the top of the credit boom, the Bank’s data showed.

Households put on extra debt for each of the 39 successive quarters – nearly 10 years – leading up to the crunch, in total owing an extra £284.2bn. But they had paid down some 51.2 per cent of this debt, accrued in the boom from June 1998 to March 2008, by the final quarter of 2012, the numbers show.

This comes despite the FLS, a flagship credit-boosting scheme launched jointly by the Bank and the Treasury, which appears to have slashed mortgage interest rates, along with a record low base rate, and the quantitative easing (QE) scheme which boosts the money supply and reduces interest rates across a myriad of markets.

The Bank said: “The fall in housing equity withdrawal since the financial crisis is likely to reflect a fall in the number of housing transactions, with little sign that households in aggregate are making an active effort to pay down debt more quickly than in the past.”

But Capital Economics’ Samuel Tombs said the dramatic fall in debt “partly reflected low housing transactions, but may also reflect households’ reluctance to take on debt.”

He added: “There is therefore nothing in today’s survey to lead us to expect anything other than a continuation of a very gradual recovery in bank lending.”

The Bank’s credit conditions survey, separately released yesterday, painted a cheery picture of household and corporate credit markets.

Wide majorities of households said that it had got easier to get hold of a secured loan in the fourth quarter of 2012 and the first quarter of 2013, and that it would continue to get easier in the second quarter.

Sizeable majorities also told the Bank’s pollers that unsecured credit conditions had eased over the past two quarters.

And even businesses said that things had improved during the first three months of 2013.

“Credit availability increased slightly for large firms, but not small and medium-sized firms,” said Grant Lewis and Emily Nicol at Daiwa Capital Markets.

“But despite the improvement in credit availability, lenders reported that demand from large firms was little changed in the first quarter, while there were further declines in demand from small and medium-sized firms,” they added.

A third release from the Bank showed that the supply of notes and coin is growing at a decent rate. They rose 4.5 per cent over the year to March, to hit £64.4bn. The other component of narrow money – reserves held by banks in the BoE’s vaults – surged 37.8 per cent during the same period, reaching a total of £278.7bn.

The rate of growth of broad money (M4) rose further to new post-recession highs of 5.4 per cent, Simon Ward of Henderson pointed out, led by improved corporate liquidity. Ward said: “UK money supply trends remain encouraging.”