Mortgage equity withdrawal was the engine of the UK economic miracle. Without it, UK households could not have kept spending. They needed the extra boost that came from borrowing money against the imaginary capital gain in their homes.
Between the summer of 1997 and March 2008, UK homeowners borrowed ₤325 billion against the value of their houses. In the last nine months of last year, households started to pay down this extraordinary debt. So far, households have repaid ₤15.6 billion, representing about 5 percent of the borrowing binge accumulated during the previous 10 years.
This is, of course, the insurmountable problem that Brown and Darling face. During the glory days of New Labour, the UK economy had become totally addicted to mortgage equity withdrawal. Brown and Darling would like to revive the habit, but UK homeowners are determined to go cold turkey.