Credit crunch hits cash-strapped homeowners

December 10, 2008

Homeowners have drawn on their biggest asset, the roof over their heads, not to fund 'champagne moments' but to get through hard times; that's the finding of a preliminary study by Durham University.

Mortgage equity withdrawal is a much more popular and frequent event than previously thought. New figures show that borrowers haven't just used their housing equity to splash out on holidays or cars; struggling households have borrowed against their homes to meet their basic needs like bringing up the kids.

Durham University researchers looked at the borrowing patterns of over 8000 households in the UK from 2001-2005. They found that in any one year, 2 in 5 homeowners ended up with higher mortgages than in the previous year, even though they had not moved home. Instead they had re-mortgaged or extended their existing home loan. On average, these households borrowed an additional £5000 to £7500 in a given year. Some of them tapped into as much as three-quarters of their home equity in this way.

Durham University housing expert Susan Smith said: "The Credit Crunch is a welfare disaster for struggling households who have previously relied on the option to borrow up against the value of their home.

"In the early years of this century we saw a form of self-administered welfare payment develop where home-owners cash in on their homes, in boom times: to support children, smooth over a fall in income, or meet the costs of relationship breakdown."

The Durham research team - Dr. Beverley Searle and Professor Susan Smith - has linked up with Australia's RMIT University to research and compare the mortgage choices of UK and Australian homeowners over the same four years (2001-2005). This was a period with rising house prices and easy credit and there are more similarities than differences in the two countries.

The research, funded by the Economic and Social Research Council, uses panel survey data that tracks the same households through every year. This ongoing study is monitoring what prompts households' use of a growing range of flexible mortgages and low cost refinancing opportunities to draw from housing wealth, and release money to spend on other things.

The findings show that this facility - to borrow against housing wealth cheaply, easily and without moving home - is a factor in the recent escalation of personal debt. However, these findings also suggest that the popular perception of equity withdrawal is not always used for life's luxuries - it's used to meet more basic needs.

Professor Smith said "This suggest that the credit crunch is not just precipitating a crisis in the finance community; it could produce a crisis of welfare too. Without the option to use mortgages to channel housing wealth into spending money, families under pressure lose access to their most significant asset base for welfare and are forced to look at other ways of getting by.

"The figures show that housing equity withdrawal has provided a lifeline for struggling families but the credit crunch threatens what has become a new form of self-administered welfare."
Additional information:

For interviews with Professor Susan Smith please contact Durham University Media Relations Office on +44 (0)191 334 6075 or email

Images: A headshot of Prof. Susan Smith is available from the Media Office.

USEFUL WEB LINKS: Professor Susan J. Smith, MA, Dphil, Professor in the Department of Geography, Durham University:

Economic and Social Research Council -

Research project - The UK researchers are Dr Beverley Searle and Professor Susan J. Smith, whose project 'Pathways from Housing Wealth to Wellbeing' is funded by the UK's Economic and Social Research Council.

Professor Susan J. Smith is a Fellow of the British Academy, a Director of the Institute of Advanced Study at Durham University and an Adjunct Professor of RMIT University. She has recently completed a programme of work exploring the integration of housing, mortgage and financial markets in the UK, USA and Australia, This was funded by the ESRC as part of its professorial fellowships scheme.

Professor Susan Smith and Dr Beverley Searle are among a small group of international experts who will be in Melbourne in February 2009 to take part in a forum, Housing Mortgages and Financial Turmoil. For more information visit:

The Australian research team is Professor Gavin Wood and Sharon Parkinson. Their project "Housing Wealth and Welfare: Unlocking Housing Wealth over the Life Course" is funded by the Australian Research Council.

Professor of Housing and Urban Studies, Gavin Wood is Director of the RMIT Research Centre of the Australian Housing and Urban Research Institute (AHURI). He is the recipient of the Vice-Chancellor's Award for Research Excellence for 2008.

Australia: For interviews or comment: Professor Gavin Wood, (03) 9925 9885 or 0434 112 712. For general media enquiries, RMIT Media and Communications, Deborah Sippitts, (03) 9925 5047 or 0400 844 075.

End of Media Release - Issued by Durham University Media Relations Office, tel +44 (0)191 334 6075 or email

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