Record drop in mortgage debt at end of 2010

BRITONS are no longer withdrawing equity from their houses to fuel consumer spending, official data suggests.

Outstanding mortgage debt plummeted by £7bn in the final three months of last year -- a record fall in debt -- the Bank of England revealed yesterday.

The figure sharply contrasts with levels of mortgage debt prior to the credit crunch, when it was common for homeowners to withdraw equity to fund spending.

In 2006 outstanding mortgage debt rose every three months, by as much as £13.2bn at the end of the year, as borrowers added debts to their houses.

At the end of 2003 debt growth was even higher, soaring by £17.1bn over three months.

Yet debt has now dropped in every quarter since April 2008, and yesterday’s figure appears to show some borrowers repaying their mortgages at an accelerating rate.

“But that’s not the full picture, it’s not just because lenders were deluged with repayments from an army of prudent borrowers,” said David Newnes of LSL Property Services.

“The overriding reason is lenders’ fears about the state of the economy, which have made them nervous about doling out mortgage finance.”