Thursday, Jul 06, 2006
More people MEW
Reuters: Mortgage equity withdrawal rises
Mortgage equity withdrawal rose to 12.509 billion pounds in the first quarter of 2006 or 5.8 percent of post-tax income, the Bank of England said on Thursday.
Posted by webmaster @ 01:12 PM (249 views) Add Comment
11 Comments
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1. inbreda said...
I like this trend. House prices down. MEW up. Mortgage lending up. mortgage debt over a trillion pounds.
This smacks of people suffering from endowments and too much debt.
And when the reposessed houses are sold for ten pence at auction the VIs will be shouting "33% rise in number of houses sold. Renewed confidence in the market"
2. sebastian said...
The whole MEW scene to me seems like a joke. How can you take money from something and then drive up it's value by doing so and then take more money against it and so on...seems crazy :S
How many people do you think MEW several times against a property?
I know of people who have MEWed and then put the money away in a bank account to build up interest. They seemed a little puzzled when I mention the mortgage interest costs would be greater than the interest made...It's ok though, their house went up £5k that month, they're £5k richer!
3. D'oh said...
sebastian wrote "I know of people who have MEWed and then put the money away in a bank account to build up interest. "
Please tell me you are joking....please!
How can people that thick earn enough money to buy a house/convince someone to give them a big enough loan to buy a house?
With respect to the article, I must admit I had no idea that MEW spending was at such a high rate.
4. inbreda said...
I think MEW is driven by people trying to buy their way out of debt. Possible only for a short period while there is equity in the property. Unfortunately we see today that prices have FALLEN. End of MEW ... explosion in IVAs.
And this is all without even an interest rate rise.
5. Surfgatinho said...
Even I was a dimmer than average MEWer I'd be crapping myself at the mention of house price going down!
6. Retiredbanker said...
D'oh
Many times in the course of my banking career ( if you can in fact call ending up as the manager of a small/medium
size branch for 3 years before early retirement a career! ), I have received requests for loans when in fact the customers had more than sufficient funds lodged in deposit accounts to cover the required purchase.
When it was pointed out that they would effectively be borrowing their own money, and paying the bank for doing this, the frequent response was "but it has taken me such a long time to save these funds that I feel reluctant to spend them".
I always managed to make them see reason, and one customer who particularly sticks in my mind, thanked me very
much for pointing out that his request did not make financial sense. He was a lecturer in mathematics at London
University! ( Unbelievable I know but absolutely true ).
I always managed
7. D'oh said...
Retiredbanker - Yes, this sort of behavioural asymmetry where debts/losses are treated differently to savings/gains is quite common, and it is observed (to the best of my knowledge as an ex research zoologist/mathematician who worked in the area of decision making for quite some time) in most vertebrates; so it isn't something one is going to erradicate from people easily. I must admit that I understand at the gut level the urge to view things these ways together with all sorts of other psycho(il)logically induced errors in reasoning (e.g. treating some sorts of money, e.g. a win on the lottery, differently to others.)
But to consciously go and take out a loan to put it in the bank and earn interest on it... I can imagine thinking the thought for a nanosecond, but to not actually twig whilst going through the motions of arranging the MEW and then opening the savings account...
("Irrationality: the enemy within" by Stuart Sutherland is quite an interesting read on the topic of human irrationality.)
8. Superruss said...
That is one amazing story Retiredbanker..Really goes to illustrate the power that frenzy has over the logical mind. No wonder the current housing market is placed where it is.
Its like stocks for dummies!
9. inbreda said...
No wonder you had to take early retirement, Retiredbanker, you obviously weren't very good at extracting maximum profits from your customers. Don't tell me, they replaced you with a modest collection of paperweights. Don't you just love responsible banks.
10. bidin'matime said...
D’oh / Retired Banker –
There is a serious point here – if someone is expecting a major need for cash in the near future, it may be cheaper to borrow more than they need on their mortgage and hang onto the excess for a while. Indeed, in the days when it was quite hard to raise cheap loans (or any loans..) it made good sense to raise a bit of spare. Also worth considering if you are changing jobs or starting a business or doing something that would reduce your credit-worthiness.
So maybe these are actually quite conservative people who regard a loan in the hand to be worth two in the bush… Indeed, if property values crash and the economy too, they may be the ones to survive, because the rest wont we able to raise the loans they need to start the businesses they need to pay their mortgages (having been made redundant in the meantime…).
11. D'oh said...
bidin - true enough, loans are only for people who don't need them...but do you really think that the person who MEWed and put the money in the bank was thinking this? Moreover, how many people are MEWing to buy a car/holiday when taking out a short term loan at a slightly higher interest rate would be cheaper in the long run. I'd rather pay my car off at 5.8% over 5 years than 5.5% over 20.