Fiscal responsibility shows it’s welcome face
New figures continue to show that on the back of the financial crisis and consequent recession, people in the UK are becoming more fiscally responsible.
The Bank of England (BoE) has shown that UK homeowners increased the value of their stake in their properties by £22.3bn last year. The figures reflect both continued decisions by homeowners to pay off more of their mortgages, and lenders’ insistence that borrowers put down large deposits.
The trend towards equity injections started in the second quarter of 2009. In the preceding 10 years, homeowners had borrowed £327bn against the inflated value of their homes.
The long house price boom, which started in the late 1990s, turned people’s homes into the equivalent of a cheap credit card. Hundreds of thousands of home owners borrowed cash in the form of top-up mortgages.
They used it to fund credit card spending, to finance spending on high-price items including holidays, home extensions and cars, or simply to invest.
At its peak in 2003, the process was adding nearly 9% a year to the post-tax income of the entire
UK population.
But under the impact of the credit crunch and the property slump, homeowners reversed that trend and they have now raised the equity in their properties by £36bn in 21 months. The value of the extra equity being added each quarter slowed down during 2009, as house prices started rising again gently.
In the first quarter of 2009, home owners’ equity increased by more than £7bn, but by the fourth quarter, this had risen by only another £4bn.
In other mortgage news this week, the availability of mortgages continued to ease, according to figures from the financial information service Moneyfacts.
Even though there is a slight reduction in availability of mortgages, it is encouraging that the average rates are still on the decline.
Figures from Moneyfacts show that he interest rate on the average two-year fixed-rate mortgage fell from 4.74% in March to 4.72% in April while the average five-year fixed-rate deal dropped from 5.92% in March to 5.87%.
The average two-year tracker-rate also went down from 3.65% in March to 3.58% in April.
The percentage of deals requiring at least a 25% down payment also dropped again, from 57% a month ago to 56%.
The news that some fiscal responsibility is winning the day over profligate spending is excellent, both for the UK economy as a whole and for the financial health of individuals. However, the news on this front is far from uniformly good as spending on credit cards begins to grow again. The sooner more people learn this important lesson the better for us all.
