With credit becoming increasingly hard to come by – and the cost of credit becoming increasingly expensive – it is little wonder that housing equity withdrawal has retreated so sharply this year. For many homeowners, the numbers simply do not add up anymore.

Mortgage equity withdrawal is defined by the Bank of England as new borrowing secured on dwellings that is not invested in the housing market. This means people increasing the size of their mortgage to pay for a holiday or new car rather than home improvements or an extension. (However, many homeowners use the funds to fund other investments, particularly pensions).

An additional factor now deterring homeowners from releasing equity is the fear of falling house prices. When house prices are rising, it is tempting to use some of the paper profits to fund a more lavish lifestyle. When prices are falling, the feel good factor disappears and people are more inclined to protect the wealth tied up in their homes.

Perversely, however, equity release mortgages, which are available to homeowners over the age of 55, have become relatively cheaper during the credit crunch. Defaqto, the data analyst, found that since last summer, the average premium paid for an equity release mortgage compared with a standard loan has almost halved. The best-buy fixed-rate deal on an equity release loan now costs the same, at 5.99 per cent, as the best-buy five-year fix on a standard home loan. Last year the difference between them was 0.93 points. Banks like equity release loans because they are less risky. The reason is that homeowners do not have to pay the mortgage back until they die so there is less chance of default.

In terms of the economy, the sharp fall in equity withdrawal will further weigh on consumer spending, which is already under pressure from rising utility bills, elevated food prices and only modest growth in disposable income.

The fall in equity withdrawal is a perfectly rational reaction to changing economic circumstances. But it is a further sign of, and will contribute to, the economic slowdown.