Housebuyers stoke debt boom

BRITAIN'S debt boom has spiralled to new heights, according to figures from the Bank of England. Housebuyers took a record £16bn out of the equity in their homes in the last three months of 2003, up from £13bn in the third quarter.

The newly released figures show equity release ammounted to a staggering £53bn over the whole year. Economists suggested the figures gave weight to the case for raising the UK base rate from 4% to 4.25%. The Bank of England's monetary policy committee is due to announce its decision on rates next Thusrday.

'We see little reason to expect any moderation in mortgage equity withdrawal over the course of this year,' said Simon Rubinsohn, chief economist at broker Gerrard. 'Indeed, we have revised up our expectations for the first quarter and now anticipate a further £16bn increase. For the whole of 2004, the level is likely to exceed £60bn establishing another record in the process.'

The amount of money people released from their homes during the final quarter of the year represented 8.3% of their post-tax income, up from 7% during the previous three months and replacing the former peak of 7.7% reached in 1988 – another period when house prices were booming.

People are increasingly cashing in on the housing boom by withdrawing money from their property to finance large purchases and home improvements or to consolidate debts.

Under equity release schemes lenders allow homeowners to increase their mortgages in exchange for a cash lump sum if their property is worth more than the original sum they borrowed.

Historically low interest rates and double digit house price inflation have led to a steep increase in equity withdrawal in the last couple of years.