Why are we so keen to pay off our mortgages? | Sean O'Grady | Independent Econoblog Blogs

Why are we so keen to pay off our mortgages? | Sean O'Grady | Independent Econoblog Blogs

By Sean O'Grady
Econoblog
Monday, 4 April 2011 at 1:50 pm

To me, much the most interesting piece of news today is the Bank of England’s figures on “housing equity withdrawal”.

This relates to the way we use our homes as a cash machine, and use the rise in their value above and beyond any mortgage on them – the equity – to go out, borrow using the home as security an d spend. Or at least we used to in the go-go years earlier this decade; now things have gone very, very firmly into reverse, and we are injecting money into housing instead or, in plain terms, paying off our mortgages early. This sis a bit perverse, it seems to me, because when interest rates are so low – negative in real terms, taking account inflation – and rationally now is the time to borrow; we ought to have been paying debt off when rates were much higher than today.

Some of it is due to the banks’ reluctance to lend to anyone but the most prime customer; it also speaks of a deep anxiety about the future among households, and suggests that the tendency for many people is to get themselves out of debt as soon a possible – lest the worse happens. This is very good for the longer term, and I precisely the antidote to our old bad habits of borrowing too much and saving too little; but in the short term it means a stagnant housing market at best, and a rather timid consumer on the high street.