British house owners borrow record £12bn in third quarter

BRITISH homeowners borrowed a record £11.97bn against the inflated value of their homes in the third quarter of 2002, the Bank of England disclosed.

Mortgage equity withdrawal (MEW) was up from £10.12bn in the second quarter and £6.8bn in the third quarter of last year. MEW has been rising steadily for two years in line with booming house prices.

With borrowing costs in Britain remaining at a 39-year low and unemployment at record lows, economists said mortgage equity withdrawal was likely to remain high in the fourth quarter of last year.

"MEW tends to be highly positively correlated with house price inflation.

"According to the Nationwide building society, house prices rose by 6.7% in the fourth quarter last year, only slightly below the 7% rise recorded in the third quarter," said Michael Taylor, economist at Merrill Lynch.

Financial markets took little notice of the numbers, with long gilts and short sterling interest rate futures barely moving.

The Bank of England kept its base rate unchanged at 4% for 14 months running, resisting pressure to cut interest rates despite increased signs of gloom in private spending.

While house prices in Britain have been surging for several years and have added about 25% in 2002, there is growing speculation that a correction, possibly even a crash, could lie ahead.