Wednesday, April 1, 2009

The markets in action …

Britons reduce mortgage debt by £8bn

The short article in full "Britons reduced their mortgage debt by a record £8 billion during the final quarter of the year, figures showed today. The amount of equity people withdrew from their homes was negative for the third quarter running, as they instead made the biggest net injection of equity since records began in 1970, the Bank of England said. It is only the third time that housing equity withdrawal has been negative since 1998, with the rate at which people are repaying their mortgage accelerating from the third quarter, when net repayments of £5.9 billion were made."

Posted by mark wadsworth @ 11:30 AM (1471 views)
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8 thoughts on “The markets in action …

  • waitingfor hpc says:

    ROBBERY!!! – that’s where the interest on my SAVINGS has gone!! I hate NU Labour.

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  • Notbuyingoneyet says:

    Goes to show that when you reduce mortgage payments, not everyone will go out and spend the ‘saving’ in the shops. Especially when their jobs are under threat.

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  • In a normal, stable, sane market, where people do not use their homes as piggy-banks; one would expect this figure to be always slightly negative, as people use inheritances to pay off the remains of their mortgages.

    However, the rapid move from heavy positive MEW (or HEW if you prefer) to a heavy negative will have a massive impact on employment and tax receipts.

    It has to be remembered that when people borrow more, they spend more, so other people earn more, and in turn believe they can afford to borrow more..

    ..this is not such an issue when the funds borrowed come from domestic savings, as the save more, spend less counterbalance delivers an equilibrium.

    The killer detail is that the UK has funded its borrow and spend boom from non-domestic funds, leading to a huge funding gap – the gulf between all the money we owe, and all the assets we have.

    No economist or senior politician can argue that this problem was hidden from view, or that that it did not represent an inevitable timebomb.

    We are only just beginning to feel the consequences of it going off..

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  • This isn’t really surprising is it – let’s face it, there’s no point having it in savings. But I agree UT – that is a shed load of cash not now being spent on Plasma telly’s and Skinny Mochachino – jobless figures in a few months will reflect this big time.

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  • britishblue says:

    One of the factors effecting this trend is and will increasingly be the mortgage rates offered at various levels of LTV. When people remortgage their LTV will be effected by the drop in house prices and they have the choice of paying higher interest rates or reducing some of their mortgage debt. For those who have assets like shares it may make sense to reduce the mortgage. This of course makes the banks customer list look much more stable, but kills consumption.

    In the UK we used to have the ‘haves’ and ‘have not’s’. I think we are starting to see other polarizations. Those that can pay of their debts and those that can’t and those that don’t have any debts. The can’t pay off their debts are caught in a cycle of having low equity in their house and other debts like credit cards. They are finding that on remortgage their rates are going up and recently credit cards have raised their average rates on outstanding balances to 19.5% with some at 30% even for those with A grade credit rating. These people are caught in a cycle where they cannot pay of their debt because of the interest charges. Unfortunately, it is going to get worse as the official base rates are only temporary and will of course rise to combat future inflation, putting many more of the ‘cannot pay of debts,’ underwater. The ‘Can pay of debts’ are meanwhile reigning in and reducing their mortgages. They are accepting that they overspent and are looking to pay of debts and save. Unfortunately, what the economy needs is for the people with no debts to increase consumption, those that can pay of debts not to be too frugal and some hard thinking on how people with manageable debts are getting pushed under water as banks an credit card companies grab what the can with exorbitant charges.

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  • [email protected]; many banks are desperately trying to improve their cash positions or get Gordon of their backs as quickly as possible. Even the more restrained banks such as the COOP have shut their mortgage departments to ANY new business and are only servicing existing borrowers because they know where the UK is going. If you look at personal loan rates for example LTSB will only lend at 9.9% or more when the UK base rate is 0.5% i.e.20X, in more recent times this multiple was 3X.

    Collateral damage is inevitable, people are foolish, banks have been caught out and as they and their customers entrench themselves for what is to come what we are seeing is the logical result of all concerneds risk management strategies. Even the government is indulging in it’s own risk management stategy however theirs as the biggest and riskiest has the potential for the biggest negative effects as a whole.

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  • enuii – I think it’s unfair to use the “20x” comparison.

    In a more sensible comparison there is probably not too much change to usual. Mortgages used to be approximately 175 bips above purchase cost – and BoE rate does not necessarily reflect money market rate

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  • I reduced my mortgage debt by £830,000 last year….I sold all my BTL properties…..

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