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Britons Pay Off Mortgage Debts

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More than half of the mortgage debt accumulated during the credit bubble has now been paid back, figures out yesterday revealed. Outstanding mortgage loans have now fallen for 19 quarters in a row even after five months of the Treasury and Bank of England’s (BoE) funding for lending scheme (FLS) trying to kick-start loans again. Households paid down £8.6bn more secured debt than they took out between October and December last year, Bank figures revealed. Combined with the previous 18 quarters of debt reduction, households now owed £145.5bn less than at the top of the credit boom, the Bank’s data showed. Households put on extra debt for each of the 39 successive quarters – nearly 10 years – leading up to the crunch, in total owing an extra £284.2bn. But they had paid down some 51.2 per cent of this debt, accrued in the boom from June 1998 to March 2008, by the final quarter of 2012, the numbers show.

But Capital Economics’ Samuel Tombs said the dramatic fall in debt “partly reflected low housing transactions, but may also reflect households’ reluctance to take on debt.”

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This is an incorrect conclusion, it's to do with low transaction numbers. The BoE address this directly, and the journo even quotes the BoE's explanation yet produces an article based on a wrong interpretation regardless!

The Bank said: “The fall in housing equity withdrawal since the financial crisis is likely to reflect a fall in the number of housing transactions, with little sign that households in aggregate are making an active effort to pay down debt more quickly than in the past.”

The BBA figs show that aggregate secured borrowing growth is about to go negative if the current trend holds. We are not there yet.

Edited by cheeznbreed

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More than half of the mortgage debt accumulated during the credit bubble has now been paid back

What exactly does that mean?

Credit climaxed in Q4/07 through Q1/08.

I fail to see how in five years folk have cleared half of the £360 billion in just mortgage debt from just 2007, let alone all the interest on it as a lot of it was IO.

I think its a bit of this in the reporting:

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I read a thoughtful and interesting critique of the Bank of England approach to the mortgage market here. Firstly it covered the issue of repayments and redemptions of mortgages

Mortgage borrowers are not behaving as “expected”

Even if you ignore the above and believe the official spin at face value you then face a problem with the transmission of your (supposed) gains to the real economy. The plan is that mortgage borrowers will be better off and spend more. Unfortunately for that there is another problem which is that they are reducing their debts.

In the first two months of 2012 total mortgage redemptions/repayments were £23.04 billion whereas this year they were £25.18 billion.

So we see yet another example of people behaving differently from the views held by many economists who seem to learn little and sometimes I have to confess I wonder if some of them actually want to learn.

Also it would appear that mortgage lending is not as hopeful as the bank of England keeps trying to tell us.

What about the amount of mortgage lending?

Again the rhetoric has been that this is surging. I have challenged this once or twice on twitter as the numbers did not seem to be backing it up and had several mortgage brokers tell me that they had “loads of work”, although somewhat ominously considering the UK’s past history much of it was buy-to let.

One might wonder therefore how and why net seasonally adjusted mortgage lending in January and February was at £1153 million less than half of 2012′s £2413 million for the same period?

http://www.mindfulmoney.co.uk/wp/shaun-richards/the-uks-mortgage-and-business-lending-numbers-show-how-broken-our-monetary-policy-is/

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With the stupidly low interest rates, if people had a brain, they would have been paying off huge chunks of their mortgages.

Imagine if you had kept the payments on your repayment mortgage the same as interest rates fell.

I can't be bothered looking up when rates fell, but I'm sure someone can give an example of how much could have been paid off a mortgage... I'd guess probably an extra £30k easily

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Actually, as Liar's Poker pointed out, the sensible thing to do is NOT pay down debt but invest in other instruments that give a better yield than the interest on your mortgate - then when i rates increase use that money to pay down the debt.

p

Unfortunately, stupid and emotional people, LIKE ME, instead choose to pay down debt, which is not at all logical in a low i rate environment.

Edited by SHERWICK

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With the stupidly low interest rates, if people had a brain, they would have been paying off huge chunks of their mortgages.

More profitable over the last few years would have been to mortgage to the hilt at low interest and invest in index-linked gilts, thus riding the wave of inflation caused by the low interest credit glut.

BTW these are free of CGT.

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More profitable over the last few years would have been to mortgage to the hilt at low interest and invest in index-linked gilts, thus riding the wave of inflation caused by the low interest credit glut.

BTW these are free of CGT.

Interesting...

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Actually, as Liar's Poker pointed out, the sensible thing to do is NOT pay down debt but invest in other instruments that give a better yield than the interest on your mortgate - then when i rates increase use that money to pay down the debt.

p

Unfortunately, stupid and emotional people, LIKE ME, instead choose to pay down debt, which is not at all logical in a low i rate environment.

+1 and me....:) or LIKE ME they saw it as an opportunity to play catchup in the housing market and get a house they really liked but prudently in a normal interest rate environment they wouldn't of chanced their arm on, I think there is a fair bit of that about and those people are agressively paying down their mortgage.

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I understand not paying down the debt and investing makes sense, it's just most normal people would struggle to find risk-free investments that earn interest at a high enough rate.

Also, I'd avoid keeping cash type assets over £16k in case your lose your job, as any savings you have can block you claiming benefits. You get the same amount in SMI whether you've paid down your mortgage to a pittance or not, but too much cash sat around and you can't claim SMI.

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Actually, as Liar's Poker pointed out, the sensible thing to do is NOT pay down debt but invest in other instruments that give a better yield than the interest on your mortgate - then when i rates increase use that money to pay down the debt.

p

Unfortunately, stupid and emotional people, LIKE ME, instead choose to pay down debt, which is not at all logical in a low i rate environment.

It's perfectly logical. You have no way of knowing when your mortgage rate will rise again, or by how much, or even that you'll keep your job! Bank of Ireland should serve as an example to all.

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I understand not paying down the debt and investing makes sense, it's just most normal people would struggle to find risk-free investments that earn interest at a high enough rate.

Also, I'd avoid keeping cash type assets over £16k in case your lose your job, as any savings you have can block you claiming benefits. You get the same amount in SMI whether you've paid down your mortgage to a pittance or not, but too much cash sat around and you can't claim SMI.

Those gilts mentioned above look interesting and i didnt know that they were cg tax free...

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It's perfectly logical. You have no way of knowing when your mortgage rate will rise again, or by how much, or even that you'll keep your job! Bank of Ireland should serve as an example to all.

Doesnt matter of they incease if the interest u get on your imvestment also increases (and of course you het a higher rate of interedt anyway). However, i am too scared to do all that so just pay down the debt at the mo.

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Doesnt matter of they incease if the interest u get on your imvestment also increases (and of course you het a higher rate of interedt anyway). However, i am too scared to do all that so just pay down the debt at the mo.

Unfortunately its not that easy without hindsight, and besides, the yield (interest) on an investment can increase two ways, nominally or by the capital value falling (technically increasing even if it actually falls nominally), as with all things its really not easy to spot something until it seems obvious at which point one should probably be looking to leave the crowded room for safetys sake

Edited by Tamara De Lempicka

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Actually, as Liar's Poker pointed out, the sensible thing to do is NOT pay down debt but invest in other instruments that give a better yield than the interest on your mortgate - then when i rates increase use that money to pay down the debt.

p

Unfortunately, stupid and emotional people, LIKE ME, instead choose to pay down debt, which is not at all logical in a low i rate environment.

Having been checking out mortgages recently, it's pretty difficult to find reasonably safe investments these days that will yield more returns on your investment than you pay in interest on a typical mortgage (yes, there are some people with lifetime BoE base rate trackers at incredibly low levels but they are a small proportion of the market). The actual rates, although historically low, are still much higher than returns on savings or Gilts which would be looked upon as the safest form of savings.

i.e. A pound paid off the mortgage saves you 4% interest on that debt. Where can you be reasonably sure of getting a 4% (after tax) per annum return?

You could certainly take a position on something (like precious metals, the stock market, commodities) but you are gambling and could come unstuck.

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+1 and me....:) or LIKE ME they saw it as an opportunity to play catchup in the housing market and get a house they really liked but prudently in a normal interest rate environment they wouldn't of chanced their arm on, I think there is a fair bit of that about and those people are agressively paying down their mortgage.

And the reason you want to pay it off in a hurry presumably is so your debt is as low as it can be when rates revert to the norm again. Which means it was a gamble, you hope that rates do not revert to their norm before you've had a chance to pay down the debt... You expect them to go up again which is why you are in a hurry to repay, but you don't expect it in the near future. One hell of a gamble. Unfortunately I dont think others gave it that much thought, they just asked the nice man in the bank what the repayments would be next month and decided that was fine.

Unfortunately it means those that do not want to gamble or who are capable of thinking it through are out bid by the others, irresponsible gamblers or unthinking wins.

That, is ridiculous.

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And the reason you want to pay it off in a hurry presumably is so your debt is as low as it can be when rates revert to the norm again. Which means it was a gamble, you hope that rates do not revert to their norm before you've had a chance to pay down the debt... You expect them to go up again which is why you are in a hurry to repay, but you don't expect it in the near future. One hell of a gamble. Unfortunately I dont think others gave it that much thought, they just asked the nice man in the bank what the repayments would be next month and decided that was fine.

Unfortunately it means those that do not want to gamble or who are capable of thinking it through are out bid by the others, irresponsible gamblers or unthinking wins.

That, is ridiculous.

It was a gamble and you are spot on with the reasoning for paying off.

Not sure your last sentence adds up though. I thought it through and 'appear' to have got it right I would say your safety first people didn't think it through, fairly obvious a years ago that's what would happen. I sold in 2007 and brought back in 2010

So you could say lucky but I was late forties my luck is having a smashing family who are always along for the ride.

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It was a gamble and you are spot on with the reasoning for paying off.

Not sure your last sentence adds up though. I thought it through and 'appear' to have got it right I would say your safety first people didn't think it through, fairly obvious a years ago that's what would happen. I sold in 2007 and brought back in 2010

So you could say lucky but I was late forties my luck is having a smashing family who are always along for the ride.

What's ridiculous is that it shouldn't take such a move to buy something as fundamental as a simple home. Extreme gambling with life altering consequences should it not pay off where the pay off is to live as well as was the norm just a generation ago, mad situation.

It ought to be possible to live 'safely' and still be able to buy a home.

I don't think it was obvious that the cost of borrowing would have remained low when you see what happened in the Eurozone over that time.

The point is that had people not taken such risks (blindly or not), which I equate with being irresponsible, prices would not have remained at unsustainable levels pricing out those that quite reasonably don't want to gamble their financial future in order to simply 'buy' a home.

It's not over yet.

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I'm not sure how Ben Southwood (the author of this article) has calculated his numbers.

The numbers from Credit Action are in complete contrast (Credit Action Debts Statistic):

Outstanding personal debt stood at £1.422 trillion at the end of January 2013. This is up from £1.408 trillion at the end of January 2012. At the end of January 2013, individuals owed nearly as much as the entire country produced during the whole of 2012.

Outstanding secured (mortgage) lending stood at £1.265 trillion at the end of January 2013. This is up from £1.248 trillion at the end of January 2012.

Outstanding unsecured (consumer credit) lending stood at £158 billion at the end of January 2013. This is down from £160 billion at the end of January 2012.

Nominally total consumer debt is up, despite consumers paying down approx. £2 billion in unsecured lending.

Edited by GradualCringe

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More than half of the mortgage debt accumulated during the credit bubble has now been paid back, figures out yesterday revealed. Outstanding mortgage loans have now fallen for 19 quarters in a row even after five months of the Treasury and Bank of England’s (BoE) funding for lending scheme (FLS) trying to kick-start loans again. Households paid down £8.6bn more secured debt than they took out between October and December last year, Bank figures revealed. Combined with the previous 18 quarters of debt reduction, households now owed £145.5bn less than at the top of the credit boom, the Bank’s data showed. Households put on extra debt for each of the 39 successive quarters – nearly 10 years – leading up to the crunch, in total owing an extra £284.2bn. But they had paid down some 51.2 per cent of this debt, accrued in the boom from June 1998 to March 2008, by the final quarter of 2012, the numbers show.

But Capital Economics’ Samuel Tombs said the dramatic fall in debt “partly reflected low housing transactions, but may also reflect households’ reluctance to take on debt.”

Link

..due to the artificially low IRs ...the savers and depositors paid for and funded these people by receiving little interest on their own deposits ....the fickle win once again in our society....time for change.... :rolleyes:

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What's ridiculous is that it shouldn't take such a move to buy something as fundamental as a simple home. Extreme gambling with life altering consequences should it not pay off where the pay off is to live as well as was the norm just a generation ago, mad situation.

You could take the view that the 60 year year golden cycle from the end of the war ended mid 2000's so actually we are reverting to a norm

Making a stretch and betting the farm to get on the ladder wasn't unusual for working class people in the 50's, 60's 70.s and 80's even in these golden years.

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..due to the artificially low IRs ...the savers and depositors paid for and funded these people by receiving little interest on their own deposits ....the fickle win once again in our society....time for change.... :rolleyes:

Good job the fickle risk takers are winning though otherwise unemployment woukd be a lot worse wouldn't it ?

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  • 261 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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