Mortgage equity withdrawals fall £1.6bn

The amount of money borrowed by homeowners against the value of their property has fallen while fears of a house price crash have risen, it emerged yesterday.

The amount of money borrowed by homeowners against the value of their property has fallen while fears of a house price crash have risen, it emerged yesterday.

In the latest sign Britain's red-hot housing market may be cooling, mortgage equity withdrawal (MEW) slowed to £15.8bn in the first quarter of the year from a record £17.4bn in the final months of 2003.

It was the first major drop-off in MEW - also known as equity release - for four years, which analysts said would reassure the Bank of England that rising interest rates were starting to bite.

Economists in the City said it supported the consensus view that the Bank's Monetary Policy Committee will leave rates on hold tomorrow. However, they said households were still releasing huge amounts of money from the value of their homes - equivalent to 8 per cent of their disposable income.

Meanwhile, Nationwide building society said the number of people who thought the value of their home would fall this year had doubled to 10 per cent since Mervyn King, the Governor of the Bank of England, said the risk of a crash had risen. The poll - of some 1,300 people - found that the number expecting the value of their property to continue rising during the coming six months fell from 66 to 52 per cent.

Elsewhere, hopes that Britain was enjoying a return to balanced growth were boosted by figures showing manufacturing industry rebounded in May. Output rose 0.5 per cent to take the annual growth rate to 2 per cent, the strongest since last October, the Office for National Statistics said.

This brings ONS data in line with the strong private sector surveys that prompted the Bank to raise rates in both May and June.

The National Institute of Economic and Social Research said it believed the economy grew by 1 per cent in the three months to June, up from 0.7 per cent in the first quarter. Martin Weale, the institute's director, said: "The reality is that interest rates are still below normal levels. The Bank should rectify this."