Equity release loses its appeal to homeowners

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by Kay Murchie

According to figures from the Bank of England, homeowners in the UK have stopped using their homes as a way of obtaining cash.

Equity release is a scheme designed to allow homeowners to release cash from the value of their property and according to the central Bank, equity withdrawals have been declining from a high since the last quarter of 2003.

For the first time in a decade, the Bank’s figures for housing equity withdrawal are negative, meaning homeowners have been reducing their debt on their homes rather than extracting cash.

During the second quarter of 2008, rather than withdrawing money, borrowers increased the equity they held in their homes by £2.8 billion - the biggest injection of cash since the Bank started gathering data in 1970.

Howard Archer at Global Insight explains that the tightening of lending criteria, falling house prices and higher mortgage rates have reduced the attractiveness of housing equity withdrawal.

Simon Rubinsohn, chief economist at the Royal Institution of Chartered Surveyors, adds that for the first time since the late 1990s, equity withdrawal is turning negative. This suggests that the downturn in the housing market is reducing access to equity built up in property over recent years.