Thursday, Dec 11, 2008
MEWing for living expenses
Guardian: Homeowners use remortgaging for day-to-day cash, says study
Most homeowners who remortgaged while house prices were going up did not blow the cash they raised but used it for the necessities of life, according to new research.
Housing expert Prof Susan Smith said the credit crunch will now affect similar families who will not be able to use any equity in their homes to raise finance.
The Durham University expert said remortgaging was even more popular than previously thought, and acted as a safety net for struggling families, rather than a way of funding big holidays or a new car.
"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 Ms Smith
Posted by little professor @ 12:46 AM (2036 views) Add Comment
44 Comments
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1. Puppee said...
so where has all the money come from for all the new cars round where i live nearly every driveway has 2 new or near new cars sitting in them , no i'm not jealous i'm a biker which is always locked away in my garage
2. mark wadsworth said...
If this is true, which I doubt, then we have been living beyond our means for a lot longer than most people though. Quite possibly our economic didn't grow at all under Nulab, the whole thing was a mirage. Possibly.
3. beartil2010 said...
Used it for the essentials? What? Selling off the house over your head to buy essentials like food? Hmm. That's only an essential if you don't have a tv license; don't have satellite tv; don't have a car; don't buy lots of clothes etc.
These people, if they were in such dire straits as to need the cash, should have sold their properties instead of incurring a bigger debt that they could not manage.
Whether this is true or not, anyone who MEWed and gets into trouble deserves what they get. Shame people don't get an education in this stuff at school :-(
4. phdinbubbles said...
"The survey asked if respondents spent the cash on home improvements, extensions to their home, on a car or other consumer goods. A fifth category was "other specified reasons". In 2003, 36% ticked that box, compared with 12% in 1991."
If the only options were home improvements, extensions, cars and consumer goods, then other specified reasons could include holidays, paying off credit card bills, etc.
5. it_is_going_with_a_bang said...
To be fair the few people that spring to mind that I know of it has been a mixture of things. Bascially living beyond your means day to day usually means building up a credit card debt, which of course holidays and the like may also get added.
Eventually that mix of debt becomes unsustainable and hence the remortgage.
To be fair what is the message the government is trying to push down people's throats right now, is it to be sensible and watch your cashflow, is it to save for the future, or is it simply please go and spend money?
It seems the message is very clear... spend spend spend.
6. Jimmyb said...
What is more worrying is that all this Mewing is now being paid for by the taxpayer - new X5 anyone? it's on me (the taxpayer)
7. last_days_of_disco said...
Well if you MEWed to gain an education, then...
And I don't mean advanced driving in a BMW X5.
8. Hogwash said...
This isn't possible. David Smith assured us that all MEWing was responsible, not a problem, never, ever.
9. str 2007 said...
I've got friends who bought an £80k house about 10 years ago with a 75k mortgage.
The house is now roughly 200k, the mortgage £110k Interest Only and I know another £25k windfall has also gone.
No unemployment through this period and not alot to show for it either.
There is roughly £2.5k per month coming into the house and a company van (so only one car needed).
That is an overspend of roughly £500 per month over 10 years.
I bet this is quite typical.
To have a remote chance of getting back on track would require the obvious £500 per month cut back + at least another £500 per month just to get the mortgage paid off over the next 15-20 years.
Theat is almost impossible for alot of families in that situation.
My point - IU think alot are beyond the point of no return because not only is £1000 per month cutback too much there is the small matter of the arrival of a recession if not worse which is likely to last 2-3 years maybe more.
10. harold said...
Timely report aimed at gaining sympathy and support for the massive government bailout of the mortgage industry and over-stretched homeowners. Savers? Pah! You're just not patriotic. Debt is okay.
11. str 2007 said...
Its going with a bang
You're quite right that is exactly the message that's being put out. You can see why they are putting it out, the trouble is your typical 'Holmer Simpson' type is just looking for any excuse to keep spending a a subliminal message from the Chancellor will do nicely.
12. landofconfusion said...
@ 09:26AM str 2007 said...
> The house is now roughly 200k, the mortgage £110k Interest Only and I know another £25k windfall has also gone.
Now I see why the financial services sector has been so important to Nu Liebor. We don't have any kind of productive industry in this countryand so without muppets like this MEW'ing money into the economy we're screwed.
13. str 2007 said...
landofconfusion
Sad and very true. In fact as soon as the MEWing stops we're screwed, never mind repaying anything.
That's what makes me so mad about the governments 'spend our way out of it policy'. Times will never be good enough to pay anything back.
14. harold said...
str 2007, They'll simply inflate away the debt - they have NO choice. However, we do have a choice: Don't hold your saving in £s.
15. str 2007 said...
harold
It's not all in sterling but looking a bit late to do much more now - what's you suggestion ?
16. drewster said...
str2007,
I like your example figures, that makes it clear how much trouble we're in! Of course it's not just MEW debt, there's credit card debt and personal loans and all the rest too.
The more serious charge against the government is that the banks have been providing pseudo-welfare for the last decade, enabling many people to sustain a standard of living to which they now feel entitled. The voters won't be happy!
17. goweresque said...
Don't forget the new govt scheme to help homeowners is a MEW scheme by anyother name - add extra to your mortgage to pay for day to day living costs for 2 years. That assumes there is still some E to W.............
18. str 2007 said...
goweresque
Exactly, the government are effectively inclreasing the likely amount of negative equity, not just by the defering over 2 years but by the fact house prices will have dropped in 2 years when crunch time comes. They'll probably just keep extending the scheme.
19. str 2007 said...
harold
I'm anticipating you saying diversify currencies.
Yesterday I was reading here about UK being ahead of the other currencies with regard to devaluation.
IE the Dollar and Euro are also likely to collapse and I believe Japan is struggling to export because of the price of the strength of the Yen.
I guess in theory all these currencies can't devalue together, but I'm not likely to buy a house in the Eurozone (unless of course we join the Euro) and less likely to move to Canada or America and certainly not moving to Japan.
Therefore would the diversification of savings be a gamble rather than hedge, much like buying Gold ? (Clearly if I could now wind the clock back 12 months I'd buy all).
20. Voodoo99 said...
Interesting - bought at about the same time. Got my fingers burnt at 21 in 1990 buying a flat "to get started on the ladder".
Ended up "stuck" in negative equity till 1997, when I was "allowed" to carry over my 25% negative equity (OK, only around £12K - but a lot to me) to the new house.
I had a 63K mortgage on a £55k new house in 1997. Having been burnt once, I have now managed to pay that all off, while all around have been on holidays, had new cars, flatscreen tv's etc,etc. I thought I would end up being in a good position, when the HPC came again - but now I guess everyone is in the same (sinking) boat... :-(
Thinking about Mewing as much as I can and dissapearing somewhere sensible (Canada, NZ?).
21. stillthinking said...
Why say possibly, Mark? The private sector did shrink under New Labour. The only expansion in employment came from government jobs, which increased by more than immigration.
22. bidin'matime said...
For those who doubt that this has been happening, as an accountant I can confirm that I know of such cases - people who WILL go bust now that they cannot keep mewing to raise funds to pay the mortgage...
As others have said, people have simply run up card debts from living beyond their means, then mewed to clear them and start again.
Add to that the mortgage on the BTL that's losing money and even otherwise 'decent' people will go to the wall - I tried to warn them, but they knew better...
23. uncle tom said...
I've looked at this several times over the past few years, and am not surprised by the findings.
The proceeds of MEWing have had a major impact on the economy, and the number of households that became dependant on the proceeds is immense.
Alarm bells should have rung when it was revealed that people who were moving house or re-mortgaging were almost invariably taking out a fresh 25yr term.
Alarm bells should have rung when it became apparent that these people were almost always releasing cash and extending their debt at the same time.
Any study of the money spent on new cars and holidays, ('expendable expenditure') - comparing it with the amount MEWed - revealed that this clearly wasn't the main use of the cash liberated, as the numbers were far too great.
It has been far too easy for households to get into the habit of spending perhaps ten or twenty percent more than they receive in income. Subsequently making economies to reign in the excess still leaves them with a legacy of debt to pay off.
This happened before in the eighties, but only really went on for about 2-3 years before a reality check took hold - that was bad enough though.
The killer detail today is that we have millions of households who have been living beyond their means for the past decade, and are now in severe debt. For many, the attempt to confront the problem will be confounded by others doing the same thing, costing them their source of income.
It's going to take several years to get out of this mess, and the govt notion that they can borrow crazily for a year before magically everything comes right again is just plain stupid.
We're only at the beginning of this now - the first phase. Next up will be the collapse in confidence with western sovereign debt, and the consequent lack of funds for state borrowing..
24. plato said...
I like str 2007's comment @ 09:26.
It's an excellent breakdown and description and I'm sure pretty accurate too and typical. I had been calculating along these lines for a couple of years before this H Price decline and constantly questioning the affluence displayed by joe public. It actually seemed mad and in all probability was. The political embarrassment occurring now is damaging the financial system so deeply through interference that it could quite reasonably end with this Country bankrupting itself.
25. Markie6 said...
" your home is not a cash machine" article from over 2 years ago....
http://www.fool.co.uk/news/property-home/2006/08/31/your-home-is-not-a-cash-machine.aspx
very relevant ..more than 2 years on.....
26. titaniccaptain said...
Outside of gold and currency exchanges does anyone have any ideas on wealth preservation?............I have put forward agricultural land as one possible haven......does anyone else have any ideas?..........
27. mark said...
i know many people who have bought expensive cars, holidays etc on the back of their property, one friend said "when will ever get the chance to buy a porsche again, i am 50 and adding 70+k to my mortgage wont make much difference but it is a chance of owning the ultimate sports car"
it is very true many people have been living beyond their means, take a drive round housing estates say 250-300k range and take a look at the cars, most people living in that price range do not have jobs to support aston martins etc.. it is very clear.
28. harold said...
str 2007, IMHO the € might be a little more robust than most people expect. Nationwide do a € savings account. I was lucky in that I converted the bulk of the £ savings into €s 2 years ago at a favourable rate. However, changing into €s now is far more risky because the £ could bounce in the short to medium term (although ultimately it is doomed). Gold is at record levels against the £ (£550/oz) and so gold too is high risk at the moment - although if some pundits are to be believed £750-£1000 is possible, even by next year. Have a look at silver. Of late silver has been slaughtered; partly due to the misguided notion that silver is a mundane commodity (like copper/lead), and as the world heads into recession all commodities including silver will fall. However, historically silver is also real money, an inflation hedge and a store of wealth. IMHO, this aspect of silver, which is being overlooked at the moment, will catch on again, and when it does its value will rocket - far more so than gold in %age terms. Silver is in my view still relatively cheap in £s and therefore less risky.
29. landofconfusion said...
@ 11:22AM 19. uncle tom said...
> and the govt notion that they can borrow crazily for a year before magically everything comes right again is just plain stupid.
I think they're only trying to borrow enough until (they hope) they win the next election. After that things will probably get a lot less rosy.
30. str 2007 said...
TC
I think agricultural land is priced high at the moment (and certainly building land is the element of house prices that does the falling). Obviously if agricultural land gains planning permission there are huge profits.
If agriculatural land is to be any good you need to find a more profiable use for it than farming. Creating a lake for day ticket fishing (having sold off the gravel/top soil first) but will require permission. Alot of people fish in a recession.
Or perhaps buying a wood and run paint ball or some event, but all these things require a full time input. Agricultural land is fairly illiquid bearing in mind the person who soold it to you didn't want it and as they own the land around yours are the most likley purchaser.
I'm sure there's something clever to with Agricultural land (other than the obvious use) but I don't know what it is.
Rubini was talking about remaining in cash and government bonds as the best option in an article posted today (or last thing yeserday).
Harold
Yes I'd noticed Silver and also Platinum as not being expensive, however I'm not sure how to hold/trade them (I don't know of a Silver or Platinum Vault - aka bullionvault). I'm not aware either of CGT implications or vat etc. Do you have any links or advise on these.
Fully agree on your other points that Gold $ Euros etc are now an expensive purchase.
31. goweresque said...
I am a farmer and own agricultural land. It is massively overpriced at the moment in my opinion. It is in no way linked to the value of what it can produce. The prices have been bid up by the resisdential value of the house especially in the South - everyone who makes a bit of money in the city wants the rural idyll at the weekends. A nice old farmhouse, few buildings for the horses and a few acres. Even prices in Wales and other further out places have risen. Ag land was £2K an acre in 1982, dropped to £1K by 1990, back to £2-3K by 2000, massive rises in last 2 years to £5K+. Whether that is sustainable I have no idea. I'm not a seller though. It'll make me a living of sorts come what may - people always need food.
32. str 2007 said...
goweresque
Thanks for confirming my thoughts.
Surprised to find a farmer on here (thought you'd be too busy and have a farm cottage). Used to be in Agriculture myself when I started out.
It's funny in some ways £5k seems cheap for an acre of land or put another way.
If you sold a 40 acre field for £200k and put the money in the bank you'd probably get about £6k a year in interest (based on 3% after tax).
What would it cost to rent a 40 acre field ?
And what would you expect to make in a year off a 40 acre field growing wheat or barley and selling the grain and bails having deducted the production costs ?
Sorry thinking out loud here.
And what about a 40 acre field with a barn that had a food production facility and turning a selection of vegaetables into expensive crisps and chutneys etc, (there's an idea for you TC).
33. James said...
str 2007 - viz my point on the gold thread re gold as a 'wealth preservation' tool. It's absolutely not. It's commodity and dollar exposure - speculation like any other asset. If you're looking to bu a house, the undoubted best place for your cash is cash. No currency fluctuation to worry about. The only asset you care about (housing) is depreciating rapidly to your benefit, considerably faster than inflation will nibble away at the savings in real terms. And remember, inflation stats are backwards looking - measuring what has happened - your savings rate is forwards looking, so saying inflation WAS 'at 5%' over the past year vs savings rate of 2.5% over the next does NOT imply a -2.5% real terms return. Cash cash cash, lovely cash. But not more than 50k in any one institution, obviously!
There will come a time to buy equities. I think this rally is a bit of a year-end hoorah, but the next time the ftse100 drops below 4000, I'll have a tickle. If you think we're headed for deflation, a bond index/etf is the place to be (so you enjoy credit risk diversification)...
NB: STAY LIQUID. Keep away from anything that ties up capital. For me, this includes bullion under the bed. For those who have it, did you ask what commission you'll pay when you sell it? You might be surprised...
34. 51ck-6-51x said...
I am staying with cash for now even though it will probably be eaten away at by inflation in the longer term - I think it gives me the liquidity to take advantage of any new opportunities.
I would have liked to move more out of Sterling earlier, but I *think* it may now be a little late (EUR is a tough call Germany is the biggest economy inside it but Spain & France are in there as well).
35. ana lytics said...
I did some back of a fag packet calculations on this a couple of weeks back....... stick with me.........
Average % of GDP MEWed between 2002 and 2007 (inclusive) was 3.8%. So that's effectively 4% added to GDP from nowhere (i.e. unearned).
You want to know the % of GDP being MEWed now (latest available stats I have are Q2 2008)? -0.9%. I.e. MEW is not happening anymore, and has swung round to net repayment of mortgages.
Hence, from 3.8% to -0.9% you have a 4.7% swing. The 4.7% swing is, in effect, a national pay cut. 4.7%, call it 5% if you will, that isn't being spent on cars, holidays, deposits on 2nd homes, etc. 5%. That is HUGE.
This country has been feeding on MEW since 2002. That is no longer an option. Time for a wake up call eh?
36. str 2007 said...
ana lytics
You'd be better at this than me, but I was pondering the Gordon Brown Arguement for us being best positioned.
The arguement I believe is a long the lines of National Debt ratio to GDP.
If we now take off your 5% of GDP of MEWed business and take away the GDP element produced by the Financial Services (or at least 50% of it).
How does that make Gordons Brown arguement look ?
37. jack c said...
Top Quality Video (Real Estate Downfall) on how Mewing can go oh so wrong - uk.youtube.com/watch?v=bNmcf4Y3lGM
I'll be interested in any feedback on this one - perhaps some can post it up as a main article as I cant seem to do so.
38. str 2007 said...
Jack C
Yes I hadn't seen that particular one, they're good aren't they.
39. jack c said...
@str 2007 - very good - I now have it as a full posting thanks to a bit of help from Little Prof.
40. ana lytics said...
str 2007.......
if you take off all of the GDP associated with MEW and some of the GDP associated with financial services, construction and public sector (3 largest sectors - have effectively been driving the country for 10 years)..........? i don't even want to know!!! it'd be bad............ hard to calculate too!!
GB doesn't have a clue. i'd go as far as to say that i will be leaving these shores if he/they get re-elected........ i mean, what kind of idiots would we be to re-elect him?
41. str 2007 said...
Thanks James
You need a bit of reassurance on here sometimes that Sterling Cash and a few Euros is the best option. & 51ck glad to har you' of a similar view.
ana lytics
re: foreign shores unless some country gives us a good deal you've been effectively trapped here now due to devaluation of the pound. All foreign property has just got 25-30% more expensive.
Goweresque
Looking forward to you coming back with some figures.
I have an overwhelming desire to become managing director of my own crisp factory !
42. goweresque said...
@ str2007:
I
ts all a bit 'how long is a piece of string' really. You can rent arable land for about £150-200/acre (which includes subsidies of about £90-100/acre), if you're renting a largish chunk (50+ acres). But if you want land that can grow veg/root crops thats more valuable (& not my sphere either). Buildings depend on where they are, how big, how modern etc etc. Plus you'd need planning permission if you wanted to start food processing, and food processing plants are VERY expensive to set up - all those 'elf'n'safety and food safety regs etc etc. For growing cereals, on a small basis you'd have to hire in contractors to do the cultivations and harvesting (unless you fancied buying expensive tractors, cultivators and combines) which would reduce the profits. Back of a fag packet - at current wheat/barley/fertiliser prices you'd be lucky to make much profit at all, other than the Single Farm Payment (Brussels Subsidies). A lot of farmers in the South of England make more money out of non-farming activities (horse stabling, holiday cottages, farm shops, renting redundant buildings out to businesses, shooting rights etc etc) than they do from farming activities.
As for crisps - read up on the Tyrells crisps guy. He was a potato farmer who got fed up selling his produce as a bulk commodity, and went into the crisp market. Very successfully too. His son was at an exclusive private school with a bloke I play cricket with. Plenty of money in crisps obviously!
43. titaniccaptain said...
F##k me........................someone pinch me..........then throw a bucket of water over me.............I think I just enjoyed something James had to say............well done James............now try and keep it simple and slow for me to understand please
44. James said...
TC - thanks. My mood has definitely improved now malct and p4ac aren't making steam come out of my ears on a regular basis...! Perhaps it'll be more 'rational' all round now!