Monday, Dec 29, 2008
Housing cash machine demands money back
BBC News: Equity 'going back into property'
The net effect is that people are paying back their mortgage debts. Peak to trough so far from £17.1bn borrowed and spent in Q4 2004 to £5.6bn paid back in Q3 this year is a swing of £22.7bn. This reversal has happened far faster than following the '89 crash.
Posted by ontheotherhand @ 10:34 AM (1289 views) Add Comment
15 Comments
- If you do not have an admin password leave the password field blank.
- If you would like to request a password allowing you to add comments and blog news articles without needing each one approved manually, send an e-mail to the webmaster.
- Your email address is required so we can verify that the comment is genuine. It will not be posted anywhere on the site, will be stored confidentially by us and never given out to any third party.
- Please note that any viewpoints published here as comments are user's views and not the views of HousePriceCrash.co.uk.
- Please adhere to the Guidelines
1. paul said...
Unnecessary use of quotes again, to window dress the stats as opinion rather than fact.
The title also implies that homeowners are making additional investments - that somehow theres a flow of cash into property, which is a dishonest impression to give.
The headline should actually read "Housing equity withdrawal in reverse".
2. it_is_going_with_a_bang said...
"People are scared stiff of recession and rising unemployment and are now paying down their debts rather than adding to them"
And the problem with that is ????
3. 51ck-6-51x said...
On the whole people are now unable to re-mortgage in order to further leverage their equity in order to spend and more people are paying down their debts now. What a shock; is this newsworthy?
Absolutely awful headline! The use of quotes, however, is totally necessary, given the headline chosen since without them the headline would have to read something more like:
Housing Equity Withdrawal Decreases By £5.7bn
See the BoE report for the full report.
4. little professor said...
Paul - correct, this isn't alleged information from a dubious source, it's the official figures from the Bank of England, there's no need for the 'quotation marks.'
It'll be interesting to see how the closure of the MEW cash machine impacts on the general economy.
5. crunchy said...
This is not so much a credit crunch as it is a MEW crunch. To FTBers it is an equity crunch hence deposits.
To business it is a low turnover projection crunch and a MEW.
To Brown it is a bank credit crunch. Like its all the banks fault.
The effects on the economy are difficult to predict as we are in a negative loop cycle. It will depend largely on Browns choices between now and when house prices bottom. The problem then I think is what do we do from there, as Britian has a very flawed economy that will be weaker than it was when the decade long bubble economy started.
I cant help thinking that somewhere along the line we are going to have to make sacrifices and choices that under normal conditions we would not have made.
Brown, is he a national security risk?
6. alan said...
Hi LP,
"It'll be interesting to see how the closure of the MEW cash machine impacts on the general economy".
I think the article provided a few clues. For a start Ford Motor aren't selling many cars (- so my contract job is about to evaporate) in keeping with many other car and component makers. My friends in the building trade are also reporting a slackening off in demand for replacement double glazed windows, new kitchens and block paved drives. It seems these purchases are on hold untill folk are sure of their jobs.
Unfortunately, most folks seem to have delayed many other major purchases (whether they were borrowing to fund them, or not), which creates a domino effect. We have too many "Retail Parks" in Essex - I expect a few leases will be allowed to expire, and branches of major chains will close.
7. crunchy said...
We all know things are going to get very dire. I think the important question is what is it going to take to reverse the trend.
I cant help thinking that somewhere along the line we are going to have to make sacrifices and choices that under normal conditions we would not have made.
Brown, is he a national security risk?
I am trying to keep ahead of the curve. Can anyone see a possible solution that will eventually change Britians flawed economy? I cant!
8. techieman said...
yes- we have to allow the debt to be liquidated whether by default or by being paid back. Only once we have taken our medicine will we get any better. This is the start - people would rather be debt free or have some savings in the end this will be good for us unless they keep on trying to reflate.
9. uncle tom said...
What is happening is that MEWing has now effectively ended. The negative figure results mainly from inheritances and other windfalls enabling some people to pay off their mortgages early.
The MEWing figures were always lower than the amount withdrawn because of the windfall pay-off factor. The true extent of people using their property as a piggy bank ran to about £75bn p.a. - a staggering figure.
Putting that into perspective, I estimate that over 2 million mortgage holders were drawing down over £20k pa, and that only about a third of the money was being blown on cars and holidays.
After factoring out these avoidable big ticket items, this suggests that over two million households were running a domestic budget deficit of over £1k per month..
This means an awful lot of people are now running on empty, financially. The consequences will become apparent in the coming months..
10. growler said...
And also spot on from the Rosie Murray-West blog in the Telegraph:
"For millions of homeowners up and down the country, this new 'save all you can' mantra makes perfect sense. To Gordon Brown, however, the whole thing is a bit of a problem.
He would rather you extracted cash and spent it in the shops to save his economy. Sorry Gordon - it just doesn't look prudent right now".
11. ontheotherhand said...
uncle tom, I don't think inheritance or windfalls are needed to have a negative figure. Am I right in thinking that most mortgages are repayment mortgages, and therefore without an remortgaging, in theory all of these would be paid back within 30 years?
12. uncle tom said...
ontheotherhand,
You'd need to trawl the BOE's methodology to be certain, but I'm pretty sure the BOE data does not include normal advances for purchase and normal repayment arrangements, only the additional advances and early redemptions.
If they included normal repayments, the natural position of the MEW stat would be heavily negative, whereas its natural position appears to be around zero.
13. crunchy said...
When did you all pack and how much is the one way ticket to the immune promise land?
14. guiriduro said...
"Equity 'going back into property' "
Would be interesting to note the change in value of the properties against which the MEW repayments were made - I have a feeling the equity is going down a pretty fast HPC plughole, doubt there is much to show for it.
15. Tenyearstogetmymoneyback said...
I've only just seen this thread and made some comments about MEW on a later one.
In response to Guitiduro's comment "Would be interesting to note the change in value of the properties against which the MEW repayments were made - I have a feeling the equity is going down a pretty fast HPC plughole, doubt there is much to show for it."
that is the entire point. Seeing your equity diminish month by month certainly encourages you to try and pay off the mortage.
During the Ten Years It took me to Get My Money Back (after a misguided house purchase in 1989) I was never in negative equity
although I could easily have been if I hadn't overpaid the mortgage. Even with overpayments my equity did drop by 2/3rds. The one good thing that I have to say about that house was that with prices dropping I never felt much need to spend any money on it. I reckon I spent about £300 in ten years ! Who needs new windows when you can buy a pot of paint for five quid ?
The other factor today is interest rates coming down. A friend of mine hasn't changed her mortgage standing order for years. As
a result two thirds of her monthly payment is paying off capital. Also what is the point of having money earning a fraction of a percent in
a bank when you could use it to pay off part off your mortage ?
:- Duncan