UK mortgage equity withdrawal highest in 3 years

UK mortgage equity withdrawal highest in 3 years


(LONDON) Britons borrowed the most against the value of their homes in almost three years during the fourth quarter, a sign that surging property prices are fuelling consumer spending in Europe's second-largest economy.

Mortgage equity withdrawal - borrowing secured against property to finance purchases such as vacations and cars - increased to 14.6 billion (S$43.3 billion) from a revised 12.2 billion in the third quarter, the Bank of England said yesterday. That's the highest since the first quarter of 2004.

The UK's central bank has raised its main benchmark rate three times since August as household spending fuels economic growth and threatens to keep inflation above the Bank of England's 2 per cent target. House prices rose 6.7 per cent in March from a year earlier, the most in almost four years, property research company Hometrack Ltd said on March 26.

Yesterday's report 'may raise some upside risk in the Monetary Policy Committee's mind for the consumption profile', said Karen Ward, an economist at HSBC Holdings plc who used to work for the Bank of England.

Bank of England policy makers, who begin a two-day meeting on April 5, may delay a further increase in borrowing costs until May as they watch for signs of accelerating inflation, a survey of economists showed. The UK benchmark rate currently stands at 5.25 per cent.

Mortgage equity withdrawals may have helped spur growth in the final three months of 2006, according to Howard Archer, an economist at Global Insight in London.

Consumer spending rose one per cent in the period from the third quarter, the second-fastest pace since 2004.

Withdrawals are also used by households for purposes other than spending, said Mr Archer, citing debt reduction, boosting pensions and other financial investments. - Bloomberg