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Mortgage equity withdrawal increases

Fri, 07 Oct 2005

The amount individuals are borrowing against their homes has increased, according to Bank of England figures.

Mortgage equity withdrawal rose to £8.7 billion from £6.77 billion in the second quarter of the year. The amount had not risen since its peak of £17.5 billion in 2003. Analysts claimed that the drop in borrowing could be related to the drop in consumer spending .

Since 2000, homeowners have borrowed £198 billion against their own homes . Howard Archer of Global Insight said that the figures were still disappointing and that no benefit was to be gained in consumer spending without more borrowing .

He said: "The sharp downturn in mortgage equity withdrawal undoubtedly weighed down significantly on consumer spending over the past year, even though a Bank of England study in 2004 suggested that mortgage equity withdrawal had played only a limited role in financing consumption."

However, he added that consumer spending would be liable "to benefit increasingly if mortgage equity withdrawal picks up further over the coming months".

Mr Archer said this could happen in reaction to growing belief that the slowdown in house price inflation has bottomed out, and that modestly lower interest rates could also have an effect.

Others were more positive. Tony Dolphin, chief economist at Henderson Investments, told BBC News: "Perhaps this is another sign that the housing market has stabilised."

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