With house prices plummeting, homeowners have less home equity or possibly negative equity, as home equity decreases you are at a greater risk of house repossession.
The media are continuously writing articles on home repossession this has made everyone aware of the need to reduce their debt to the bank.
So people are putting all of their spare money back into their mortgage, in an attempt to increase home equity and therefore reduce their risk of house repossession.
UK home owners have reduced their mortgage debt by 5.7 billion between July and September this year. At the same time last year mortgagees increased their mortgage debt by 11 billion, by borrowing more money against their home. So it is clear to see that this is a massive change in their behavior.
To put the 5.7 billion into perspective this is the largest cash injection into home loans since banking records began in 1970.
Chancellor Alistair Darling has been put in charge of the finances for the government, he is trying to put strategies into place to get consumers spending again to help the UK economy get out of recession. He controversially reduced VAT by 2.5%, to try to encourage people to spend more. We personally think that this was a poor strategy, destined to at best encourage a negligible increase in spending.
On the surface it appears his strategy to stimulate spending has failed. Or will home owners continue to spend all of their spare money on mortgage repayments for the foreseeable future, in an attempt to increase their home equity?