Housing equity withdrawal turns negative in Q2

LONDON (Reuters) - Housing equity withdrawal turned negative in the second quarter for the first time in a decade as falling house prices and rising mortgage rates turned off a key source of consumer finance.

Bank of England figures showed households put 2.8 billion pounds of equity into their homes in the April to June period. This was the first negative withdrawal reading since 1998.

Households extracted 5.2 billion pounds from their homes in the first quarter of the year and just under 10 billion in the second quarter of 2007.

As a percentage of post-tax income, housing equity withdrawal fell to -1.2 percent in the second quarter from 2.3 percent in the first.

Rising house prices in recent years encouraged Britons to refinance home loans to free up cash for other purposes. The drying up of this source of funding suggests the consumer sector could be in for a rocky ride, particularly when other forms of finance are being restricted.

Net mortgage lending slowed to a trickle in August and approvals for new mortgages fell to less than a third of their level a year ago.

The Nationwide house price index showed property prices in September were 12.4 percent lower than the same time last year, the largest annual drop since the series began in 1991.

“Higher mortgage rates, markedly tighter credit conditions and falling house prices have increasingly reduced the attractiveness of, and scope for, housing equity withdrawal,” said Howard Archer at Global Insight.

“This reinforces our belief that we are in for an extended period of serious consumer retrenchment.”

Reporting by Christina Fincher; editing by Chris Pizzey