Mortgage debts down by £8bn

Britons reduced their mortgage debt by a record £8.14 billion

Britons reduced their mortgage debt by a record £8.14 billion during the first quarter of the year, figures have shown.

Falling house prices and the economic downturn have put people off taking money out of their property, leading to equity withdrawal being negative for the fourth quarter in a row.

The rate at which people are repaying their mortgages has also continued to accelerate compared with the final quarter of last year, when home-owners made net mortgage repayments of £7.76 billion, according to the Bank of England.

Homeowners' focus on paying down their mortgages is in stark contrast to figures for the same period of last year, when people released £6.73 billion from their properties to fund large purchases, although this was itself the lowest figure for six years.

But while people's focus on paying down their debt may be more prudent than tapping into their housing wealth to supplement their spending, it is bad news for beleaguered retailers.

Equity withdrawal accounted for 2.9% of people's post-tax income during the first quarter of 2008, but during the first quarter of this year, they spent the equivalent of 3.5% of their pay paying down their mortgage.

This turnaround is likely to have contributed to the fall in consumer spending seen during the first three months of the year, with figures from the Office for National Statistics released earlier this week showing the biggest drop in household spending since 1980 in the first quarter.

The latest figures are a far cry from the record £17.09 billion of equity that was unlocked during the final quarter of 2003.

Equity withdrawal enables homeowners to cash in on rising house prices by increasing their mortgages to convert some of the rise in the value of their home into cash.

The money is typically used to fund big purchases such as cars or home improvements, or for debt consolidation.