According to a study conducted by researchers at Durham University, the lifestyle and living standards of many homeowners depend upon remortgage cash from the increasing property values of the last decade or so.

They believe that if there were a freeze on releasing equity from the home, which in many cases is what is happening now that property values have started to fall, this will plunge thousands of homeowners into what they term a ‘welfare nightmare’.

Although many have used remortgage cash for luxuries such as a new car or to improve their home, many more have used it for necessities and they believe that by 2005, many were actually relying on this cash.

“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,” said Susan Smith, a housing expert at the university. “In the early years of this century we saw a form of self-administered welfare payment develop where homeowners cash in on their homes in boom times: to support children, smooth over a fall in income or meet the costs of relationship breakdown.”

Many cases like this will soon be in negative equity if they are not already.  Although remortgaging for extras like a new car or home improvements can make financial sense as it is cheaper than taking out a personal loan, reputable mortgage advisors will have advised their clients that they should increase their mortgage payments to avoid paying for these items over a longer period and ultimately paying more for them.  If clients are remortgaging to pay for lifestyle necessities, it is important to establish whether this is sustainable or a temporary move.

The study surveyed more than 8,000 customers across the UK from 2001 to 2005.

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