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Ash4781

Housing Equity Withdrawal (Hew) Q2 2009

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So if I'm reading that graph right, we're talking about around £9-10bn per quarter for at least 7 years = at least £250bn in excess mortgage payments to be repaid (with interest). That's about 20-25% of GDP for one year and the equivalent of a £10,000 loan with interest for every full time worker. I don't know about inflation/deflation, but that's certainly going to hit demand at some point.

Another way to look at it is the amount of negative equity there would be in the UK if house prices fell to, say, 50% of their 2007 high. I think this would raise the total to at least 40% of GDP in unproductive loans to be repaid, judging by this graph:

11610655d3eaa4810e6e0e5aa6167c5a_debt.jpg

This graph also tells you why keeping house prices high with zero interest rates is such a bad idea. The more people who buy in at overinflated prices now, the more negative equity there is going to be to pay down (with interest) in the future. We are avoiding short term pain, but the price is going to be much more long term pain.

Any way you look at it, it's not pretty.

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This graph also tells you why keeping house prices high with zero interest rates is such a bad idea. The more people who buy in at overinflated prices now, the more negative equity there is going to be to pay down (with interest) in the future. We are avoiding short term pain, but the price is going to be much more long term pain.

Any way you look at it, it's not pretty.

Exactly this is very basic maths and somthing I have been arguing for years. AREA UNDER GRAPH is the most important thing in this bubble and the longer they keep it at these levels of overvaluation the more people that are caught in the web.

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Isn't this just because people are paying the same mortgage payments every month, and more is now capital repayment and less is interest.

Despite what everyone on here thinks, most people aren't reckless feckless pillocks.

With lower interest rates, I would expect most people would be happy to pay the same monthly total to the bank and pay off the mortgage early, rather then buy a new TV.

The data just reflects this. Possibly.

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It's important to remember that negative housing equity withdrawal doesn't necessarily mean that households are overpaying mortgages (twatmangle is right).

The definition of HEW is:

Add net lending secured on dwellings

Add capital grants to personal sector and housing associations

Subtract household investment in dwellings

Subtract household net purchases of land

Subtract household costs associated with the transfer of ownership of non-produced assets

The CML keep stressing that they are not seeing any great increase in mortgage overpayments. Net lending secured on dwellings has continued to increase throughout the recession, albeit slowly.

Because GDP is falling (in nominal as well as real terms) the amount outstanding as a %age of GDP continues to rise. This is a point that needs stressing. UK households have not yet started to deleverage.

Here's the chart which takes us up to end-Q2 2009. Secured lending stands at 86.6% of GDP, total lending is 102.9%.

lendingvGDPQ209.gif

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I would say that if the chart showed nominal debt then we'd see de-leveraging taking place, at least in unsecured debt unrelated to housing (not sure if the chart shows all household debt or just housing related debt).

However I think the chart makes the very excellent point that a continuing severe fall in GDP will likely result in a RISE in leverage as % of GDP, which is exactly the point I have been making - a severe or even moderate deflation is likely to reduce incomes more than it reduces debt.

Finally there has been overall private sector de-leveraging in the shadow banking sector (which is mostly gone tho perhaps threatening to return) and the private corporate sector. These entities are presumably capable of de-leveraging faster than households.

I also wonder whether the chart takes into account an increase in household savings offset against debt (i.e. people building a safety net of cash before concentrating on debt repayment).

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Because GDP is falling (in nominal as well as real terms) the amount outstanding as a %age of GDP continues to rise. This is a point that needs stressing. UK households have not yet started to deleverage.

I'm not sure measuring outstanding mortgage debt relative to GDP is the right way to do it. I think it would be better to do it relative to wages, since mortgages are paid from wages. Wages have been falling as a % of GDP since the 1970s. But yes, it does seem like the Great Payback/Default has yet to start.

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http://www.bankofengland.co.uk/statistics/hew/2009/jun/index.htm

Homeowners paying down debt close to record level of last quarter. Sounds deflationairy...

Everyone I know with a mortgage is doing it whether its a spare £500 of £50K

This month I paid down by £13K

Next month when the ceque comes through from the BS - another £17K will be shaved off.

No point saving at 1% interest with 40% going in tax when the mortgage is costing 2.95%

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I'm not sure measuring outstanding mortgage debt relative to GDP is the right way to do it. I think it would be better to do it relative to wages, since mortgages are paid from wages. Wages have been falling as a % of GDP since the 1970s. But yes, it does seem like the Great Payback/Default has yet to start.

wages are relative to gdp, in aggregate.

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Everyone I know with a mortgage is doing it whether its a spare £500 of £50K

This month I paid down by £13K

Next month when the ceque comes through from the BS - another £17K will be shaved off.

No point saving at 1% interest with 40% going in tax when the mortgage is costing 2.95%

Ditto.

Last October our mortgage stood at £82k. As of today it stands at £28k on an interest rate of 1.2%. To be honest we could pay the rest tomorrow but want to keep a little in reserve. Probably clear it in 6 months whilst keeping a safety net of about 6 months salary.

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Ditto.

Last October our mortgage stood at £82k. As of today it stands at £28k on an interest rate of 1.2%. To be honest we could pay the rest tomorrow but want to keep a little in reserve. Probably clear it in 6 months whilst keeping a safety net of about 6 months salary.

I suppose the alternative is to invest it - but then the banking sector can just skim it to add to the bonus trough :angry:

Im keeping a £10K emergency reserve which I could cope on for a year.

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I suppose the alternative is to invest it - but then the banking sector can just skim it to add to the bonus trough :angry:

Im keeping a £10K emergency reserve which I could cope on for a year.

I agree about a reserve, but I'd need more than 10k, I think I'd want 20k minimum in case of longer term unemployment - 20 have just gone in my outfit.

If you're in IT, fine, but in more niche areas you need more of a buffer.

Otherwise I agree with paying down.

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