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Guest An Bearin Bui

Equity Loans As Next Round In Credit Crisis - Ny Times

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Guest An Bearin Bui

The MEW spending binge of the last few years is coming back to bite spendthrift Americans now, according to the NY Times. People who borrowed in the good times are now finding they can't sell to cover the loans against the house and are being foreclosed on as a result.

NY Times article

Underscoring the difficulties likely to arise from home equity loans, a Democratic proposal in Congress to refinance troubled mortgages and provide them with government backing specifically excludes second liens. Lenders holding a second lien would be required to write off their debts before the first loan could be refinanced. That could leave out a significant number of loans, analysts say.

Looks like any planned bail-out won't cover MEW - I wonder if that will be the same in the UK? To be fair, at least some Americans have the excuse of astronomical medical bills and college tuition to blame for their MEW-ing; what on earth were British people borrowing for? 4x4s? Holidays?

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The MEW spending binge of the last few years is coming back to bite spendthrift Americans now, according to the NY Times. People who borrowed in the good times are now finding they can't sell to cover the loans against the house and are being foreclosed on as a result.

NY Times article

Looks like any planned bail-out won't cover MEW - I wonder if that will be the same in the UK? To be fair, at least some Americans have the excuse of astronomical medical bills and college tuition to blame for their MEW-ing; what on earth were British people borrowing for? 4x4s? Holidays?

The following article explains how some of the coping classes spent their equity - nor can I blame them given the state of comprehensive education.

An Englishman's home should be safe from Blair and Brown

By Tom Utley

Last Updated: 12:01am BST 22/04/2005

This week, my wife and I reached a moment in our lives that all parents who educate their children privately long for. Tuesday was the first day of our second son's final term at Dulwich College - and therefore the last day on which we would ever have to pay a bill for school fees.

True, university tuition fees are stretching ahead of us into the distant future (I am assuming that Labour will win the election) - both for the two older boys and for their state-educated younger brothers.

But never again will we have to suffer that thrice-yearly plunge into the depths of the red that we have endured, along with so many others, for the past decade. Free at last!

As attentive readers will know, however, it is not quite the whole truth to say that I have been paying all these fees by my own efforts. On my taxed income alone, I couldn't possibly have afforded the £20,000-odd a year that Dulwich was charging me when I had two boys in the upper school.

Like so many other parents, I had a great deal of help - and that help came from my house.

I have increased my mortgage five times over the past 10 years to help with the school fees, which means that my annual statements from the Cheltenham and Gloucester are now as thick as a short novel.

Unless I live longer than I expect, I will be paying back the building society for the rest of my days. But I am not complaining about that.

I realise that I have been very lucky to have lived through a decade of rising property prices, in which I have been able to borrow more and more money, secured against the value of my house, at a time when I needed it most.

I lay my financial affairs before you, not to grumble, but only because they are a story of our time: an Englishman's home, if he owns it, is no longer just a roof over his head; it is more even than his castle; it is his way out of a present financial crisis, and his hope of security in the future.

New Labour used to go on about "stakeholders", although I notice that the party stopped using the word long ago, when it realised that nobody knew what it meant. For many of us - most of us, perhaps - the only solid and meaningful stake that we hold in our country's economy is in the bricks and mortar of our homes.

When Tony Blair and Gordon Brown seek to bump up taxes on property, therefore, they are playing an extremely dangerous game with middle Britain.

Nobody can seriously doubt the Government's purpose in revaluing every home in England for the purposes of council tax. The idea is to make the great majority of us pay more, without compromising the Chancellor's promise to keep the basic and top rates of income tax unchanged.

It is the same confidence trick that Mr Brown played when he increased National Insurance - income tax in all but name, except that bus drivers have to pay it, while self-employed £1-million-a-year barristers do not.

Mr Blair and Mr Brown may protest that the effect of the revaluation - a process that will cost us all £100 million - will be "revenue neutral".

The idea is not to raise more money from taxpayers, they say, but to make the system "fairer", so that those whose houses have increased most in value will pay relatively more than people whose values have increased by less.

They should try telling that to the people of Wales, where the revaluation has already taken place. There, it has meant that 33 per cent of tax demands have gone up, while only eight per cent have come down.

But you only have to think for two minutes about a tax based on property values to realise that fairness doesn't come into it at all. Why should a pensioner, living alone, have to pay hundreds of pounds a year extra to have her wheelie-bin emptied, just because she has the bad luck to live in a house that has shot up in value?

It is not as if she fills up more bins, simply because people are prepared to pay more for houses in her area. Nor does the increase in the value of her house make her any richer, unless she plans to sell up or to sign an equity release scheme. And why should she be forced to do either?

The revaluation will also be unfair to recent first-time buyers, and to others who have big mortgages. True, their houses may be worth much more than they were when the last English council-tax valuations were done in 1991. But what comfort is that, if they have bought their houses since the value went up, or if the building society owns most of the equity anyway?

It will be unfair, too, to those who have spent their earnings on improving their houses - converting lofts into bedrooms, adding bathrooms or building extensions. Home improvements are a social good, which ought to be encouraged by the Government, not punished by higher taxes.

I wish that I could tell you the fairest way in which to fund local government. The poll tax made some sense, of course, although I cannot see any government venturing down that path again, after what happened to Margaret Thatcher.

The Liberal Democrats' idea of a local income tax has the merit, at least, of being more rational than a tax based on notional house prices. But no good has ever come, for rich or poor, from hammering the wealth-producers.

There may be something to be said for a local sales tax, which I have heard some quite sensible people advocating. But I have no idea whether or not it would work.

What I do know is that Michael Howard's promise to scrap the current revaluation of houses in England is quite the most sensible pledge that he has made so far in the election campaign.

Since he became Chancellor, Mr Brown has imposed no fewer than 66 tax increases, hoping that nobody would notice. Mr Howard has grasped the truth that the only point in this expensive revaluation is that it should be the 67th.

Until somebody comes up with something better than the council tax, the best that we can hope for is to keep it as low as possible.

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Guest An Bearin Bui
The following article explains how some of the coping classes spent their equity - nor can I blame them given the state of comprehensive education.

An Englishman's home should be safe from Blair and Brown

By Tom Utley

Last Updated: 12:01am BST 22/04/2005

My heart bleeds - Americans have to deal with a crumbling public school system and property taxes too so that article still doesn't justify the extent of MEW in the UK.

edit: and the guy in the article is just insane to spend that much money privately educating his kids. There are some good state schools if you look hard enough. He would have been better off financially to move to an expensive / high-income neighbourhood and get access to a good state school that way. He'd still have a large mortgage but he'd have the house to match!

Edited by An Bearin Bui

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My heart bleeds - Americans have to deal with a crumbling public school system and property taxes too so that article still doesn't justify the extent of MEW in the UK.

edit: and the guy in the article is just insane to spend that much money privately educating his kids. There are some good state schools if you look hard enough. He would have been better off financially to move to an expensive / high-income neighbourhood and get access to a good state school that way. He'd still have a large mortgage but he'd have the house to match!

I wasn't for a moment suggesting that ALL equity withdrawl has gone toward paying private school fees - just offering that school fees is another place where MEW has been parked. Whether you approve or disapprove ("my heart bleeds") is irrelevant.

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  • 295 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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