Friday, Jul 07, 2006

Equity withdrawal grows as housing market runs out of steam

TimesOnline: Housing market 'runs out of steam'

The Bank of England reports that levels of cash withdrawn against mortgages grew in response to a stronger housing market but recent reports from both the Halifax and Nationwide suggest the housing market has run out of steam. This begs the question has the recent upturn in consumer spending been on the back of equity withdrawal and will we soon hear retailers talking of a slowdown in consumer spending? With at least one interest rate increase very likely this year how will the consumer and the house buying British public respond?

Posted by denzil @ 10:14 AM (601 views)
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1. japanese uncle said...

I wonder those financial illiterates misled to believe that equity release is really the 'release' of the excess value of their houses, could possibly be rushing to secure the maximum cash benefit before the full-scale crash.

Friday, July 7, 2006 10:37AM Report Comment

2. sebastian said...

This time is looking very interesting indeed. People are still borrowing massive amounts against their house yet we have just seen a possible (not totally convinced yet) drop in prices..Could this market really come down purely on the basis of excessive borrowing and over speculation without requiring the usual lack of employment and interest rate rises that we usually hear about?

I don't see why the debt will no longer be managable, there doesn't seem to be an oversupply of houses, are there many forced sellers? What would be forcing prices down all of a sudden? Probably a 'blip'...

Friday, July 7, 2006 11:01AM Report Comment

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4. George Monsoon said...

Probably a blip, but lets hope not. A whole generation (me included) are relying on a massive downturn in prices in order to own a piece of England and this could well be the turning point.

Friday, July 7, 2006 11:51AM Report Comment

5. Ohhyesitwill said...

The cash cow has left the building........

Friday, July 7, 2006 12:19PM Report Comment

6. Ohhyesitwill said...

Sebastian, prices are definately going down in Cheltenham, an area where house prices have pretty much gone up with the average. I know 3 people who have got houses they cannot shift and windows around me are filling up with 'to let' signs. If there is an over supply then why is this? What the rates go up and the BTL's see negative returns then they will sell up. More houses.

I still maintain that a .5 % increase would blow many people out of the water, that is .5% more on high LTV's, unsecured loans, credit cards, at least few hundred pounds. People will throw in the towel.

Rates are on a knife edge, the longer it goes before the rates go up, the more people will borrow the maximum within their means, which as we know is a lot of money these days - credit everywhere....

Friday, July 7, 2006 12:28PM Report Comment

7. P. Doff said...

I know many of you like to hear about BTLers getting stung, so thought the following might make your day.

Two blocks of flats recently built in this area. Of the 20 units in the first block, only 2 were bought by genuine occupiers (old people with loadsamoney retiring). 14 were bought off plan by speculators @ 200K (some buying more than 1) . 4 are unsold to date. Many were put straight back on the market asking 230K. Current situation is asking prices now reduced to 205K on the speculator flats, but, and here is the rub, the builder can't sell the remaining 4 flats and has reduced the price to 175K.

Similar situation with the other block, including one flat bought for 195K now back on the market at 175K. Meanwhile the flats remaining unsold in that block are up for auction by the builder.

Of course, this does not mean that prices have crashed, it just means that speculators paid over the odds to start with. I mean. why buy a 2 bed flat for 200k when you can buy a 1970s 3 bed detached bungalow for 185K in a better position in the same town?

Now contrast the above with the current situation with another block of flats just commenced construction in a nearby town. The agent tells me that all have already been sold off plan at around 235K (the agent having bought one himself). This is the crazy market we are in - there is always another batch of speculators who imagine they have business acumen and believe they are about to make a killing from continued price increases.

On a separate topic, yes there are MEWers in difficulty although repossessions in this area remain at only a trickle. There are some bargains (by present standards) to be had when sellers are under pressure. I saw a nice bungalow on the market recently for 220K whick sold for 175K (I know because I valued it for the lender). The problem with finding such bargains is that a whole new industry has sprung up to take advantage of the 'disadvantaged'. The 'we will buy your house dirt cheap. com.' companies who advertise on the net and media. They score because they guarantee the cash within a day or 2 and this might be preferable to being repossessed. These companies often obtain a professional valuation and offer 25% less. They often sting the seller for a high valuation fee (which the valuer gets only a part of) plus an admin fee. The average buyer rarely gets to hear about said bargains.

With regard to recent news postings by Haliwide about falling prices, don't be too overjoyed just yet as 'tomorrows' news will probably be reporting a new boom. This Website likes to keep us all interested!!!

Friday, July 7, 2006 01:36PM Report Comment

8. sebastian said...

hmm, looks like I am falling for the spin "Housing shortgage!!". It must be true, they keep saying it...

Friday, July 7, 2006 01:45PM Report Comment

9. Tensecs said...

"I still maintain that a .5 % increase would blow many people out of the water, that is .5% more on high LTV's, unsecured loans, credit cards, at least few hundred pounds. People will throw in the towel."

But credit card debt is not calculated at bank rate, do we know if their rates will go up in line?

Friday, July 7, 2006 02:08PM Report Comment

10. Jolo said...

would i be correct in saying once MEWers have used up all the equity they vaule their house at. When it comes to selling it they might as well be a FTB?

Friday, July 7, 2006 02:22PM Report Comment

11. Jolo said...

Would i be right in saying that if a MEWer use's all the equity up to what they belive the property is worth. when they wish to sell the property (if they can) they might as well be a FTB?

Friday, July 7, 2006 02:34PM Report Comment

12. bidin'matime said...

Can somone explain how the prices have fallen further this month than for some years, but the annual YOY rise is up from 9.1% to 9.4%? Surely, for the YOY level to rise from last month, the fall this month has to be less than the fall in same month last year!

Friday, July 7, 2006 02:41PM Report Comment

13. Markd said...


This from the Moneyweek article posted above:

"The annual rate of house price growth still gained, rising to 9.4% from 9.1% in May. But even Halifax pointed out that this was due to the extent of last years slowdown, and nothing to get excited about".

No, I don't really understand either but I think it has to do with the figure for June 2005 falling out of the calculation i.e the 9.4% is based on 1.7.05 to 30.6.06, whereas 9.1% was for 1.6.05 to 31.5.06.

Friday, July 7, 2006 03:23PM Report Comment

14. denzil said...

Jolo said...
>>Would i be right in saying that if a MEWer use's all the equity up to what they belive the property is worth. when they wish to sell the property (if they can) they might as well be a FTB?

Jolo, welcome.
That's my understanding.

I've told this story on here before but I'll tell it again. I know of a woman who inherited ex council house off her late father. He bought it for about about 4K and it was recently worth about 179K. She withdraw equity, then more equity and it became an addiction and people wondered why she was a single Mum with about 5 kids and no job but appeared reasonably wealthy. She kept borrowing more and more money against her house until she hit the point where her outgoings were greater than the money coming in. I'm not sure about her situation now but the last I heard was the BMW has been replaced by a BMX and her kids are wearing hand-me-downs again.

I would have some sympathy if she wasn't such a chav. Actually, I can tolerate her being a chav but her kids were feral and made many peoples lives miserable with their anti-social behaviour whilst she got drunk in the local legion club and opened her legs to anyone with a pulse who happened to stagger by.

Friday, July 7, 2006 04:40PM Report Comment

15. bidin'matime said...

Markd yeah, thanks, I realise that, but if June 05s figs are replaced by June 06, then for the annual index to go up, June 06 must be better than (or not so bad as) June 05. But if June 06 was the worst since October 2000, that cant be the case.

I can only think that its yet more evidence of damned lies and statistics from the VIs, except this time they havent realised that their sums obviously dont add up. And neither have the supposed experts in the press.

Anyone else any thoughts on this?

Friday, July 7, 2006 04:59PM Report Comment

16. denzil said...

My maths is quite shaky but to me it seems mathematically impossible for the YoY rate to go up when this months data is negative because the month 12 months ago was already included in the YoY. The only way it could possibly happen is for the month that just fell off end to have had a bigger drop than this month, which it didn't.

Saturday, July 8, 2006 09:45AM Report Comment

17. Markd said...


Just had a look at the Official Release attached to the figures from the Halifax in the statistics section- page 5 lists the actual figures for each month, the actual rise for the last 12 months based on these is 8.2%, not 9.4%, but the Editor's notes state "...the "annual change" numbers are the quarterly year on year figures. These figures provide a much better picture of underlying trends compared to a monthly year on year number as it smoothes out any short term fluctuations"

That, I think, is the reason for the apparent discrepancy, not as I thought above as, as you quite rightly point out, the figures for last June would have had to have been worse than this June's for the annual figure to rise on their falling out of the picture.

Saturday, July 8, 2006 03:59PM Report Comment

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