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Last Updated: Thursday, 23 November 2006, 11:45 GMT
House prices 'fund renovations'
House with cement mixer outside
Financing an improvement is the main reason for borrowing more
More than half of English homeowners who raise money by borrowing against the value of their houses spend some of it on home improvements, a survey says.

The government's Survey of English Housing found that 656,000 people borrowed an average of 33,000 each in each of the past three years.

Of these, 56% spent some of the money on improvements, 29% paid off debts, and 15% bought goods for the home.

English households borrow 22bn a year through mortgage equity release.

The figures are published in a survey carried out by the National Centre for Social Research for the Department of Communities & Local Government.

Its survey for 2005-06 included questions on mortgage equity withdrawal (MEW) for the first time.

"It is re-assuring that the two most popular uses are for house improvements or renovations and to pay off debts," said Bernard Clarke of the Council of Mortgage Lenders.

Bank of mum and dad?

In the past decade the rise in property prices has far outstripped the rise in average incomes.

There has been a growing belief in the mortgage lending industry that borrowing from parents has been an increasingly important way for young people to buy their first home.

But the survey estimates that only about 14,000 people in England each year borrow more in the form of MEW specifically to buy another property.

Of all the households in the survey, 8% used MEW to finance another property for themselves, either at home or abroad.

Only 2% used MEW to help buy a property for someone else in their family.

Vexing policymakers

The amount of money being withdrawn through MEW has often puzzled economic policymakers who have pondered just how much was being spent on things such as households goods, cars and holidays.

Pay off debts - 29%
Invest or save -13%
Improvements/renovations - 56%
Carpets, furniture etc - 15%
Buy another UK home - 6%
Buy a property abroad - 2%
Buy a home for a family member - 2%
Buy a car - 12%
Pay for a holiday - 7%
School fees - 1%
University costs - 2%
Finance a business - 3%
Other - 10%
Source: SEH

Previous guesses by industry experts had suggested that only about 40% was spent directly on improving the quality of people's homes.

But these latest figures suggest that the proportion may be higher, with less money being spent on the High Street.

The survey also found that 29% of borrowers used the money to repay other debts.

Of the households surveyed, 12% used some of the money to buy a car or another vehicle, and 7% paid for a holiday.

Expanding mortgages

Of those who take money from their properties the vast majority did so by expanding their borrowing on their current main residence.

But 17% got hold of the money by down-sizing - selling up and moving to a cheaper property - 5% borrowed against a second home, and 8% simply sold a second home.

The Bank of England attempts to measure MEW for the whole of the UK each quarter.

Its figures suggest that for the country as a whole, 240bn has been borrowed by this route since the start of 2000.

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