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Magic Hew / Mew Machine In Reverse


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Below are the monthly nett personal debt increases in £billion since 2007/06 including both secured and unsecured debt. Overall debt is still increasing but at a much reduced rate. How long before this figure goes negative? My guess is about now.

2007/06 10.4

2007/07 10.3

2007/08 8.5

2007/09 11.2

2007/10 8.8

2007/11 8.9

2007/12 9.1

2008/01 8.4

2008/02 9.8

2008/03 8.2

2008/04 7.3

2008/05 5.4

2008/06 4

2008/07 4.3

2008/08 1.4

2008/09 2.4

2008/10 1.3

2008/11 1.5

2008/12 2.2

2009/1 1.1

2009/2 1.3

2009/3 0.9

2009/4 1.3

2009/5 0.6

Edited by Freeholder
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IMHO the trigger was the drop in interest rates, the economy was teetering house prices were falling but they were saved by Gordon at the last minute. Ones the mini boom had started the cheap money chased the boom....

Well this graph doesn't really say much on that, but I thought it was interesting.

The Specialist lenders' rise and fall.

These are all approvals including purchases and remortgages and HEW.

SpecLenders.JPG

post-9535-1246619957_thumb.jpg

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Well this graph doesn't really say much on that, but I thought it was interesting.

The Specialist lenders' rise and fall.

These are all approvals including purchases and remortgages and HEW.

Nice graph, lines up with the silly season years....

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Crikey - trust you lot to take a negative spin on people actually trying to pay off their mortgages!

Simple logic. If the money is paying off mortgages it's not being spent on cars/holidays/extensions/boob jobs....

Our economy had to an extent become dependant on this source of money to fund all the starbucks and tanning shops, give employment to all those nice european people and pay builders the wages of doctors for carrying bricks around and p1ssing in your water tank.*

*mostly in jest

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Ah right I understand now. Apples and oranges. You are talking about GDP I was talking about post tax incomes.

On your second point, I think that it is more likely that the HEW recovered when the economy did, but have nothing to back this up in figures, maybe GDP vs HEW would be a good chart to see. It might tell us which one lagged the other (if at all).

And was it the govt dropping IRs or was it the explosion of Liar Loans and sub prime lending that drove the last hurrah for MEW between '04 and '07?

As far as those graphs go.. (As far as I can tell)..

Normally, you expect HEW to be in line with house price inflation - since old mortgages are paid off and new ones created, the new ones being bigger than the old due to HPI. This works as long as the number of mortgages being taken out is about the same as those retired.

So what these figures say is that the number of people taking out new mortgages (or remortgaging with cash-out) has dropped dramatically - it's not so much a matter of people overpaying.

If you had a £1 trillion repayment mortgage, by my calculations you'd be paying about £3 billion a month off the capital, or circa £10bn per quarter at the start, more later. So the final figure is probably almost all stndard repayment.

Still comes out of the economy, of course.

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I don't think it is.

EDIT: I think it will be the total of new secured loans and other equity release e.g. new mortgages and re-mortgages.

If you borrow 5% of your home as a secured loan , that will be 5% equity release

And if you get a 125% mortgage, that will be treated as 25% equity release.

If you extend your mortgage from 80 to 85% ltv when you re-mortgage that will be 5%.

If you buy a house with an 80% ltv loan, that will be minus 20% equity release.

I think you're right - sorry for any confusion - the BoE defn of HEW is below - seems to be derived from the net lending stat which does include normal repayments

DEFINITIONS

The Bank’s estimate of HEW is intended to measure that part of secured borrowing that is not invested in the housing market.

HEW occurs when lending secured on housing increases by more than investment in the housing stocks. Investment comprises new houses, home improvements, transfers of houses between sectors, and house moving costs, such as stamp duty and legal fees (although these fees do not add to the value of the housing stock, they are measured as investment, so reduce the funds available for consumption). So HEW measures mortgage lending that is available for consumption or for investment in financial assets (or to pay off debt).

HEW is measured as:

Series Code

Source

+ Net lending secured on dwellings

VTVG.Q (1)

BoE: Monetary and Financial Statistics (Bankstats)

+ Capital grants to personal sector

ADCE.Q

ONS

+ Capital grants to housing associations

GTDI.Q

ONS

- Household investment in dwellings

DLWK.Q (2)

ONS: Blue Book (Table SUP1)

- Household net purchases of land (Table A41)

NSSY.Q (2)

ONS: United Kingdom Economic Accounts

- Household cost associated with the transfer of ownership of non-produced assets

Edited by newdman
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As far as those graphs go.. (As far as I can tell)..

Normally, you expect HEW to be in line with house price inflation - since old mortgages are paid off and new ones created, the new ones being bigger than the old due to HPI. This works as long as the number of mortgages being taken out is about the same as those retired.

So what these figures say is that the number of people taking out new mortgages (or remortgaging with cash-out) has dropped dramatically - it's not so much a matter of people overpaying.

If you had a £1 trillion repayment mortgage, by my calculations you'd be paying about £3 billion a month off the capital, or circa £10bn per quarter at the start, more later. So the final figure is probably almost all stndard repayment.

Still comes out of the economy, of course.

Thanks fluffy (and others).

This could go some way to explain perhaps why the figure did not go so low in the last crash.

Obviously there is more credit tightening this time (to say the least), we did see 110% mortgages back then which disappeared afterwards.

There was supposed to be a much larger proportion of IO mortgages back then as well (although obviously linked to some kind of repayment vehicle, however lame that ended up performaing). This might prevent the standard repayments from pushing those figures down by a small amount (I think it is probably dwarfed by the credit tightening though).

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Growth in lending has become very sluggish recently, but it's still positive. As a result total debt outstanding continues to rise (as others have noted above). At the same time nominal GDP has been falling, and so the ratio of debt-to-GDP has also continued to rise.

It's possible that the amount outstanding is being overstated because banks and building societies are deliberately not writing off bad debts and non-performing loans. Nevertheless we've got an awful long way to go if we want household leverage to decline.

LendingVsGDP.gif

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Growth in lending has become very sluggish recently, but it's still positive. As a result total debt outstanding continues to rise (as others have noted above). At the same time nominal GDP has been falling, and so the ratio of debt-to-GDP has also continued to rise.

It's possible that the amount outstanding is being overstated because banks and building societies are deliberately not writing off bad debts and non-performing loans. Nevertheless we've got an awful long way to go if we want household leverage to decline.

LendingVsGDP.gif

it strikes me that the neo-liberal monetary policy is desgined not to force consumer deleveraging proper. But because this is a financial situation far different to normal recessions to not go down the route of deleveraging is to expect the consumer to resume the credit binge...with a little help from the banks, but because the banks are doing precisely as predicted and we have peak credit anyway it's questionable whether this strategy can be sustainable...if it can't then there's clearly going to be a prolonged period where govts. continue with the role they've assumed in response to the crisis.

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There is a similar issue with the savings ratio. The savings ratio takes into account borrowing...so in fact the savings ratio has been rising not because people are saving more but because they are not being allowed to borrow as much.

There was this snippet of a quote from the Beeb site posted earlier...

QUOTE

It was also affected by lenders requiring larger deposits when lending to people buying homes, thus producing a greater injection of equity into the property.

So the whole thing may be largely because banks are requiring larger deposits from new borrowers...not because people are actively repaying their mortgages and maybe not even because people are borrowing less against the monthly repayments they are making en masse.

Thanks for this point. I'd not thought of it quite like that.

If seller is in trouble, verging on negative equity - let's say they can pay off the mortgage by selling up.

Then if a buyer is required to stump up 25% deposit on same house, the net effect is an injection of equity into the housing market and a fall in bank lending.

Imagine what would happen if every householder on the verge of neg eq decided to throw in the towel now and sell up...

Chilling thought.

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