Equity Release Loans Go Into The Red
The net balance of homeowners taking equity out of their homes through a secured loan has fallen into a negative position for the second quarter in a row, according to the latest figures from the Bank of England.
Home Equity Withdrawal (HEW) schemes which use a secured loan or a re mortgage loan have been extremely popular over the past few years, as house prices in the UK have soared, creating large equity balances in many homeowner’s properties. But since the start of the credit crunch this type of borrowing has slowed, largely due to falling house prices reducing the amount of available equity and increasing the overall loan to value ratio on people’s homes.
The latest statistics have revealed that in the three months between July and September this year, there was a negative figure for equity loans of -£5.7 billion. This follows a negative figure in the previous three months of -£2 billion, the first time there has been a drop in this type of loan since 1998. This means that on average, rather than taking out additional secured borrowing on their homes, the UK home owning population has actually repaid around £7.7 billion of secured loans off their properties within a six month period.
Part of this change is undoubtedly due to banks and building societies tightening their lending criteria and restricting the amount of new loans they offer, but it also shows that home owners are now realising that the value of their homes and therefore the available equity is falling, making them concentrate on repaying their secured loans rather than taking on additional debt.
These figures show a huge change from last year, when £11.1 billion was taken out of properties as equity loans between July and September and even £5.6 billion was released over the first quarter of this year.
