A recent report from the Bank of England has revealed that the amount of money “unlocked” from property between April and June 2008 stands at -?2.76 billion - the first time a negative amount has been measured on the survey since 1998. This means that more equity was put in to property than released from it over the three-month period.

This rise in equity is also the highest since the Bank began taking records thirty-eight years ago.

This newly conservative attitude amongst homeowners may be attributed to the recent downturn in the UK housing market. Recently released figures from Nationwide, indicates that house prices have dropped for the past eleven months in a row, and are currently around 12 percent less than they were at the peak of the market last year.
Lenders have additionally seriously tightened their criteria for borrowers applying for credit – including secured loans - due to the crisis, which has worsened over recent weeks with the nationalisation of Bradford & Bingley and the takeover of HBOS.

Property equity withdrawals over the first quarter this year was ?5.24 billion.
The Bank of England’s Credit Condition report shows “expectations for house prices and concerns about the economic outlook” led banks and building societies to reduce the amount of mortgages available. Over the next few months the credit crunch is widely expected to deteriorate as wholesale funding conditions also tighten and banks lose their appetite for risk. Unsecured credit – the form of personal loans, credit cards and overdrafts – also diminished.

The Bank of England also revealed demand for mortgages and remortgages “declined sharply” over the three months and demand was expected to fall further. The survey of lenders also revealed an increase in default rates on mortgages and loans and higher levels of people struggling to pay their debts is expected as the economic situation continues.

In a more upbeat mood, The Bank of England is widely expected to reduce interest rates this week in an attempt to bolster the failing economy. Financial turmoil, plus last week’s gloomy manufacturing data have heaped pressure on the Bank’s Monetary Policy Committee to reduce rates. Economists say a quarter of a percentage point cut is most likely but there are those that think a half-point reduction is possible.

A rate cut would help bolster the housing market and consumer spending. The Bank has held off trimming rates until now because of rising inflation. However the balance of opinion has swung in favour of a rate cut following the manufacturing sector’s downbeat figures.