According to the Council of Mortgage Lenders (CML), recent fears about negative equity and mortgage crises may only be painting part of the true picture, and the most negative part at that.
It claims that homeowners are actually in a strong position at the moment as, in reality, the combined value of un-mortgaged wealth held by homeowners is far higher than the level of mortgage debt.
Recent Bank of England figures state that the amount of housing equity withdrawal – borrowing secured on property that is not re-invested in housing – fell sharply in the final quarter of 2007 to £7.2 billion compared with £10.8 billion in the previous quarter. The Bank of England reports that housing equity withdrawal for 2007 totalled £41 billion.
However, the CML warns that: "The natural assumption is that such large numbers – and any short-term fluctuations in housing equity withdrawal – are automatically significant for the UK economy.
"But these numbers also need to be viewed in the context of the enormity of the household sector within our wider economy."
It adds that quarterly data "can be volatile, making it difficult to discern trends from over the short term".
The CML points out that "overall net wealth of households is huge", totalling an impressive £6.9 trillion at the end of 2006. Furthermore, household wealth has also grown substantially, rising from £3.1 trillion a decade ago and £1.4 trillion 20 years ago.
The largest component of household wealth is physical assets, the majority of which (£3.7 trillion) consists of residential property. And, while various factors, including stock market peaks and troughs, have affected wealth levels, changing house prices and the growth of home-ownership have been the most influential issues. Meanwhile, mortgages
now account for 75 per cent of total financial liabilities for each household.
"We estimate that home-owners had total housing wealth of £3.5 trillion last year," says the CML. "Within this, those owning their properties outright had equity of about £1.5 trillion. Although home-owners had mortgage debt of more than £1.1 trillion, this still left free housing wealth – that is, housing equity not subject to a mortgage – at a record £2.5 trillion."
It adds that: "Overall, the finances of home-owning households are strong and healthy, even amongst those buying with a mortgage."
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