Homeowners paid off £8billion of their mortgage debt in the last quarter of 2008, new figures from the Bank of England show, as they cash in on falling interest rates.
This marks a significant increase on the previous quarter, when homeowners repaid £5.9billion of housing equity.
The Bank of England base rate, which determines the cost of tracker mortgages
, fell from five per cent in September to just two per cent in December, seeing tracker mortgage customers' repayments plummet.
And mortgage rates have since fallen even further, as the base rate continued its downward trend to 0.5 per cent in March.
But instead of reducing their monthly mortgage
payments, many homeowners have continued to repay the same amount, cutting thousands of pounds and several years off their mortgages.
Commenting on the Bank of England figures, Louise Cuming, head of mortgages at moneysupermarket.com, said: "People seem to have seen the light when it comes to their money, and are becoming more astute with their finances. These figures show homeowners are taking advantage of successive rate cuts to overpay their mortgage and reduce their debts. This is undoubtedly a positive sign that financial turmoil has turned people's attention to the management of their personal finances."
Accruing more equity in their home will benefit homeowners in several ways, Ms Cuming continued. Not only will it mean less interest to pay in the long-term, but holding more equity will also give homeowners access to better mortgage deals
in the future.
"Lenders are becoming increasingly obsessed with equity," she said. "The lowest fixed rate mortgage
for someone with 10 per cent equity is currently 5.99 per cent with the Yorkshire Bank
, but for those with 25 per cent equity, you can get 3.49 per cent with Alliance & Leicester
. On a £150,000 mortgage, that's a difference of £5,170 over two years - a huge incentive to increase the equity in your home by overpaying."
But Simon Rubinsohn, chief economist at the Royal Institute of Chartered Surveyors (RICS), is less optimistic about the amount of cash which homeowners are injecting into the market.
Rather, he said, it "demonstrates just how damaging the collapse in the housing market has been for the wider economy."
He added: "The likelihood is that despite tentative signs of a stabilising in activity in the residential market, homeowners will find it difficult to resume extracting equity from property for the foreseeable future given the weak pricing environment. This will provide a further obstacle to a recovery in the economy."Compare mortgage quotes »
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