Page last updated at 12:19 GMT, Tuesday, 6 April 2010 13:19 UK

Home owners' equity is still increasing

For Sale signs
House prices have picked up in the past year

UK homeowners increased the value of their stake in their properties by £22.3bn last year, Bank of England figures show.

They reflect 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 seventh successive, and still marked, net injection of housing equity in the fourth quarter of 2009 is the consequence of the ongoing desire of many people to improve their personal balance sheets, given high debt levels and still serious concerns and uncertainties over the economic situation," said Howard Archer of IHS Global Insight.

Easy credit

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 pay off money they owed on credit cards, to finance big-ticket spending on items including holidays 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.

Cheaper mortgages

The availability of mortgages continued to ease in the past month, 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," said Darren Cook of Moneyfacts.

Figures from Moneyfacts show that:

• The interest rate on the average two-year fixed-rate mortgage fell from 4.74% in March to 4.72% in April

• The average five-year fixed-rate deal dropped from 5.92% in March to 5.87% in April

• The average two-year tracker-rate 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% at the beginning of April.

However the total number of mortgages on the market shrank slightly - from 1,798 at the start of March to 1,727 on 6 April.

"This is due largely to Accord Mortgages withdrawing a large portion of its mortgage range," said Darren Cook of Moneyfacts.

"Accord Mortgages have advised that the withdrawals are [because] they are unable to deal with the excessive demand for its mortgages," he added.



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