There has been a huge drop in the amount of money which is being raised by home owners through housing equity withdrawal (HEW) loans since the beginning of this year according to a report from the Bank of England.
The Bank estimated at the end of last year that the level of money raised through HEW loans would be somewhere in the region of £7.4 billion for the first quarter of 2008, however the actual amount borrowed was only £5.04 billion, £2.3 billion lower than the Banks estimate.
Housing equity withdrawal is the process by which homeowners are able to release equity from their properties via a loan or remortgage, which is not then reinvested into the property market, either in the form of home improvements or use as a deposit for an additional property purchase. Instead of this, the money raised through the loan is used elsewhere, such as debt consolidation or to help fund consumer spending.
This method of raising capital has been extremely popular over the last few years, as property prices have increased dramatically over this period, providing home owners with a large amount of equity in their homes, which many have been tempted to release in order to fund things like a new car, or holiday, rather than taking out a conventional personal loan.
The large drop in this type of equity release shows that consumers are eventually waking up to the fact that house prices are dropping and the equity they had built up over the years is being eroded.
Another factor which is likely to affect HEW is the major banks’ unwillingness to grant loans of this nature, as the funds are not being reinvested into the property. At least with a conventional secured loan, the money is being used to increase the value of the property in question.
To put these lending figures into perspective, the Bank of England data shows that over the same period last year £13.89 billion was raised through HEW and the total for last year alone was in excess of £42 billion.
