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Uk Homeowners Spend £6.2Bn To Pay Down Mortgage Debts

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http://www.telegraph.co.uk/finance/economics/8036705/UK-homeowners-spend-6.2bn-to-pay-down-mortgage-debts.html

Homeowners paid down their mortgages by an extra £6.2bn in the three months to June, proving that Britain’s new-found financial prudence shows no signs of waning.

Households have been making great efforts to reduce their debts since the crisis struck, injecting a total of £44.2bn into their mortgages over and above their repayment schedules since March 2008, according to data from the Bank of England.

For the ten years before the crisis, homeowners had consistently cashed in on the equity stored in their homes. At its peak, in the final quarter of 2003, equity withdrawal reached £17.1bn. In 2006, the last year before the financial crisis, total equity withdrawal was £50bn.

Simon Rubinsohn, chief economist at the Royal Insitutution of Chartered Surveyors, said: “Homeowners no longer view their property as a cheap source of finance to boost their spending power.

“One might have expected the recovery in house prices through the latter part of last year and into the first half of 2010 to have encouraged homeowners to again draw down their capital, but the failure to so reflects the increasing caution of property owners.”

Howard Archer, chief UK economist at IHS Global Insight, added: “There is an ongoing desire of many people to improve their personal balance sheets given high debt levels and serious concerns and uncertainties over the economic situation.

“Furthermore, extremely low savings rates have made it much more attractive for many people to use any spare funds to reduce their mortgages. In particular, people may be using the extra money that is resulting from their much reduced mortgage interest payments to reduce the balance that they still owe on their houses.”

The stock of mortgages is still growing, however, just at a much slower rate than in the past. Britain’s outstanding mortgage debt totals £1.24 trillion and grew by £1.66bn in August, Bank data shows. Historically, equity withdrawal accounted for almost half the total mortgage market, as homeowners took cash out of their homes to pay for holidays and luxury items.

Why won't people help the economy and spend the bloody money instead of paying down debt. There clearly can't be any sort of recovery whilst people are as stupid and selfish as this. £6.2bn could have been spent in the wider economy in the past 3 months rather than paying down debt.

Clearly some people are economically illiterate.

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I paid £10k of my 3% APR mortgage this week.

I had the money in a cash ISA, the rate had dropped to 1%, so effectively -4% real rate when price inflation is taken into account.

I see it as effectively getting a 7% return on my money by paying off the lump sum.

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I paid £10k of my 3% APR mortgage this week.

I had the money in a cash ISA, the rate had dropped to 1%, so effectively -4% real rate when price inflation is taken into account.

I see it as effectively getting a 7% return on my money by paying off the lump sum.

You need to subtract inflation from your mortgage rate too. However, you are still 2% up, so kudos.

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http://www.telegraph.co.uk/finance/economics/8036705/UK-homeowners-spend-6.2bn-to-pay-down-mortgage-debts.html

Why won't people help the economy and spend the bloody money instead of paying down debt. There clearly can't be any sort of recovery whilst people are as stupid and selfish as this. £6.2bn could have been spent in the wider economy in the past 3 months rather than paying down debt.

Clearly some people are economically illiterate.

I am sur ethey want to, but teh computer says no. THey have no choice but to pay down debt (i.e. stick to terms of repyment mortgage etc)

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I paid £10k of my 3% APR mortgage this week.

I had the money in a cash ISA, the rate had dropped to 1%, so effectively -4% real rate when price inflation is taken into account.

I see it as effectively getting a 7% return on my money by paying off the lump sum.

I just got 4.1% on an isa. Over three years mind.

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You need to subtract inflation from your mortgage rate too. However, you are still 2% up, so kudos.

Also need to factor in the present value of the implied tax break on ISA returns beyond the term of your mortgage.

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I paid £10k of my 3% APR mortgage this week.

I had the money in a cash ISA, the rate had dropped to 1%, so effectively -4% real rate when price inflation is taken into account.

I see it as effectively getting a 7% return on my money by paying off the lump sum.

We are paying chunks off our IO BTL loans at a rate of knots.

At the moment, most of our rates are very low, due to being linked to BOEBR.

But I know that soon this may change, so its worth paying them down as much as we can now, so as and when rates rise (perhaps by quite a lot, and quite suddenly!) we are in a better position.

I am not surprised that many people are quietly de-leveraging their financial position so as to be better able to weather whatever storms may lie ahead.

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The boe must be worried with this paying down debt and the ftbs also hoarding cash(due to the deposit requirements ). They will have to try to get real rates well into the negative though I'm not sure this will work.

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The Telegraph journalist doesn’t seem to fully understand what the BoE’s Housing Equity Withdrawal number encompasses. It’s not possible to infer from the negative withdrawal number that it’s due to homeowners overpaying on their mortgages. Even the normally reliable Howard Archer of IHS Global Insight appears to make this error in the article.

The BoE changed the name from MEW (Mortgage Equity Withdrawal) to HEW (Housing Equity Withdrawal) to try and reduce this sort of misinterpretation of its data.

Obviously it didn’t work.

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Yeah my mate paid down 10% of his mortgage, he borrowed 10% from the bank so he could get a better deal.

Current Mortgage Interest .... 6%

Still he gets to say MY Independent Financial Adviser around the dinner table, bargain.

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the report is nonsense.

from the BoE report:

Within the total, net lending secured on dwellings increased by £1.7 billion .

in one month.

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The Telegraph journalist doesn’t seem to fully understand what the BoE’s Housing Equity Withdrawal number encompasses. It’s not possible to infer from the negative withdrawal number that it’s due to homeowners overpaying on their mortgages. Even the normally reliable Howard Archer of IHS Global Insight appears to make this error in the article.

The BoE changed the name from MEW (Mortgage Equity Withdrawal) to HEW (Housing Equity Withdrawal) to try and reduce this sort of misinterpretation of its data.

Obviously it didn’t work.

Why's that?

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Why's that?

Housing Equity Withdrawal (HEW) occurs when secured lending on residential property increases more than investment in residential property. Conversely negative HEW means that investment in housing has increased more than secured lending.

Here’s how the BoE calculates HEW:

hew1.gif

The BoE gave some examples of how housing equity withdrawals/injections can occur in its Spring 2001 Quarterly Bulletin:

hew2.gif

http://www.bankofengland.co.uk/publications/quarterlybulletin/qb010105.pdf

Referring to the above, it’s not difficult to come up possible contributory factors as to why HEW has turned negative over the last couple of years:

  • Last-time sales have dropped. Last-time sales used to be the largest single factor in HEW, but in the current market there are plenty of owners who are delaying selling because they can’t realise what they believe their house is ‘worth’. So, for example, pensioners moving to a retirement home or those who have inherited a property through death may be letting the property or simply leaving it empty rather than selling up and releasing equity.

  • Home improvements. With cash in the bank earning next-to-nothing and a lack of choice in the market when moving, many homeowners may decide to stay put and improve their property, using savings rather than taking a loan. This is an increase in residential investment and shows up as negative equity withdrawal.

  • First-time buyer deposits. These represent equity injections into housing, and with LTVs much lower than they used to be, deposits are now larger.

In short, it doesn’t require borrowers overpaying mortgages to create negative HEW. It simply means that net marginal secured lending (new loans minus repayments of capital) is less than marginal investment in housing.

As a final point, the CML noted last year that there was little evidence that homeowners were paying off mortgages any faster due to lower interest rates (apologies, I have no link for this).

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What's the reason for paying off more of the mortgage? Would this not just shorten the period by maybe a few years? Payments seem to reduce anyway because of inflation, so keeping to the longer period may make more sense. If interest rates go up, the principal amount is still much the same (if you are paying off a recent mortgage as mostly interest is paid up front) so the repayments would still increase by much the same.

Someone said they are paying more off an IO mortgage. Would this just shorten the term again? At this point the principal would have to be repaid. Is it not better to keep the repayments as low as possible, to maximise the term, and then the principal required on termination would be minimsed because of inflation?

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What's the reason for paying off more of the mortgage? Would this not just shorten the period by maybe a few years? Payments seem to reduce anyway because of inflation, so keeping to the longer period may make more sense. If interest rates go up, the principal amount is still much the same (if you are paying off a recent mortgage as mostly interest is paid up front) so the repayments would still increase by much the same.

Someone said they are paying more off an IO mortgage. Would this just shorten the term again? At this point the principal would have to be repaid. Is it not better to keep the repayments as low as possible, to maximise the term, and then the principal required on termination would be minimsed because of inflation?

with an IO mortgage, no principal is paid off during the term.

therefore, an overpayment WOULD reduce the principle, and therefore the monthly interest too.

the term remains.

for example I borrow £25 IO over £25 years.

I agree to pay 10% interest.

each year, according to the terms, I pay £2.50 interest...10%..at the end of each year, I owe, £25

If I overpaid £1 each year, lets look at year 1.

at the end of year 1, I would owe £24, so next year, I would at max pay £2.4 interest.

at the end of year 2, I would owe £23, so interest would be £2.3

yuo can see, overpayment of an IO loan makes the interest payments lower in the future....It doesnt affect the term, although you could overpay it all and owe nothing in short order if you had the cash.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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