Mortgage equity withdrawal drops sharply

Consumers' appetite for borrowing against the value of their home to fund lifestyle purchases such as holidays and cars has plummeted, according to figures released today by the Bank of England.

Mortgage equity withdrawal - borrowing against a property that is not reinvested in the housing market - fell to ?6.9bn in the last three months of 2004, down from ?11.3bn the previous quarter and ?16.8bn a year earlier.

Analysts said the fall, coinciding with a slowdown on the high street, could encourage the Bank to leave interest rates on hold not just for the foreseeable future, but for the rest of the year.

At ?8.9bn, February's growth in total net lending to individuals was down from ?9.5bn in January, while growth in net lending secured on dwellings stood at ?7.2bn, up from ?7.1bn in January, but still weaker than the previous six-month average, the Bank said.

The value of all loans approved rose, as did the number of loans approved for house purchases. But the number of loans approved for remortgaging and for other purposes fell.

Growth in consumer credit also slowed, with both net credit card lending and other loans weakening.

David Page, economist at Investec, said: "The borrowing figures are slightly mixed - mortgage lending and the value of approvals rose modestly which is consistent with the housing market remaining supportive, but not showing signs of recovery.

"We continue to look for stagnation rather than a pernicious slump. The Bank of England may take some comfort that the number of approvals has ticked upwards, though this remains at a low level. However, mortgage equity withdrawal numbers dropped to ?6.9bn - a very sharp drop - half the level of six months ago and the weakest since 2001.

"The drop has coincided with the slowdown on the high street, and the slowdown in the housing market, and the slowdown in household expenditure may suggest some of the downsides identified by the Bank are starting to materialise.

"As a result, we think the Bank will not only keep interest rates on hold for the moment, but also for the rest of the year," Mr Page said.