Householders are paying down their mortgages - Not quite.

Graham_Devon

Often stated on here that householders are using the low interest rates to pay down their mortgages.

Although mortgages are being paid down, the BOE state that it's not due to increased payments, rather a lack of people selling and moving (therefore paying off current mortgage for longer).

Homeowners continued to inject equity into their homes at the start of 2011 - but not to the same degree as much of the previous year, figures show.

Mortgage borrowers increased their financial stake in properties by £5.8bn in the first three months of the year.

This was lower than the record-breaking £7.1bn in the previous quarter, the Bank of England statistics show.

The Bank's analysis suggests the trend was the result of lack of activity in the housing market.

The injection of equity reflected a fall in the number of sales, rather than householders making an active effort to pay off their mortgages more quickly, it said.

Some other interesting figures in the article....even a statement that equity withdrawal was spent on holidays and cars - something else often denied on here!

http://www.bbc.co.uk/news/business-14011834

RenovationMan

What difference does it make whether mortgage debt is reducing because of people actively overpaying or because people are staying put longer and therefore not increasing their borrowing, the fact remains that mortgage debt is going down.

I would have thought that this was a good thing?

Rinoa

Graham_Devon wrote: »

Some other interesting figures in the article....even a statement that equity withdrawal was spent on holidays and cars - something else often denied on here!

http://www.bbc.co.uk/news/business-14011834

Well, they still paid down £5Bn+ in 3 months.

And from the article:

"The days of the house doubling up as a cash machine are well and truly over," said David Birne, an insolvency practitioner at HW Fisher and Company chartered accountants.
"With interest rates at their current negligible level and inflation so high, borrowers know that they are better off paying down their mortgages with any extra cash than putting money into a savings account."

Not sure it says what you claim it does.

Graham_Devon

RenovationMan wrote: »

What difference does it make whether mortgage debt is reducing because of people actively overpaying or because people are staying put longer and therefore not increasing their borrowing, the fact remains that mortgage debt is going down.

I would have thought that this was a good thing?

While I agree,

It makes a large difference to the "arguments" which are used on here to explain away how low interest rates are working so well for so many.

If those arguments which are repetatively used are false, as its shown that they are, I don't think it's particularly wrong to use facts to show they are false. Afterall, I've been arguing for ages that householders injecting extra money en masse into their mortgages isn't what's happening, only to be called all kinds of stuff. Not moaning about the name calling, but will link up to an article which proves my very point.

This very thread will turn into the usual argument, hence my very point....people don't want to hear what the article states.

RenovationMan

I thought the argument was many home owners are not benefitting from low rates and that when rates start to rise it won't make much of a difference? Your post seems to bear this argument out.

We have overpaid £47k onto our mortgage over the last 13 months. We don't plan to overpay anything like that over the next 13 months. I guess this will prove that we are also not injecting money into our mortgage and will support your assertion.

DervProf

Paying off mortgages is a good thing, IMO, rather than increasing them (massively). It's a pity that by the time mortgage debt is brought down, the desire to get back into debt will return (I still think it's there, but the banks aren't playing ball at the moment). And off we'll go again, on the road to boom then bust. I fear that the boom might be larger, and the bust will be even bigger - not that I'm totally against big busts, as long as they are not the financial kind.

Graham_Devon

RenovationMan wrote: »

I thought the argument was many home owners are not benefitting from low rates and that when rates start to rise it won't make much of a difference? Your post seems to bear this argument out.

We have overpaid £47k onto our mortgage over the last 13 months. We don't plan to overpay anything like that over the next 13 months. I guess this will prove that we are also not injecting money into our mortgage and will support your assertion.

It's not about you. or any individual bullish poster on this website.

This is on a country wide basis!!

Paying down mortgages is great. All the article, and myself is saying is that it's not purposeful overpayments to make the most out of low interest rates which is the main driver.

Percy1983

I will say from the friends I know with mortgages it seems all lower mortgage payments have done is bring them away from the edge slightly so they can get back to wasting money.

By all means I would be paying down my mortgage as much as possible if I had a mortgage right now as mnay on here seem to have done, but I do guess people who think like that are a minority.

RenovationMan

Graham_Devon wrote: »

It's not about you. or any individual bullish poster on this website.

This is on a country wide basis!!

Paying down mortgages is great. All the article, and myself is saying is that it's not purposeful overpayments to make the most out of low interest rates which is the main driver.

I didn't realise that you had me pidgeon-holed as a bull. It comes as a surprise to me as I actually am quite bearish about the state of the property market at the moment, which I think will see stagnation and periodic drops over the next 3 or more years.

Even on a countrywide basis, statistics are comprised of individuals. Some individuals like myself on low mortgage rates who will have made large overpayments and feel that they can taper them back in order to invest elsewhere. Others will be on fixed or higher rates and may not have the disposible income to overpay with. Others will be investing their cash rather than making overpayments. Others will be spending their money on enjoying themselves. We are all individuals and we all want different things out of life.

The main thing is that, on a countrywide basis, mortgages are being repaid. Which is a good thing.

Rochdale_Pioneers

Percy1983 wrote: »

I will say from the friends I know with mortgages it seems all lower mortgage payments have done is bring them away from the edge slightly so they can get back to wasting money.

We dropped off our 5 year fixed deal in May. Payments droped £120 a month, and we looked at overpaying by that amount or a little more. But as we've just had our 3rd child and my wife is on maternity leave, we're diverted the cash onto some baby-related capex.

The report makes the same point I keep making - sales are (at least in the north east) virtually dead. The only way anyone on my street has been able to sell has been to either default and get reposessed, or part-ex. My neighbour a few doors up had the house up for sale for 12 months before doing a part-ex deal with Barratts. They have now dropped the price down to "why can we not sell this property" prices and they still have no punters interested.

For me there are two issues. One, the markup banks are making on mortgage rates above base rate is quadruple what it was. And more importantly two, the level of deposit required means that many potential punters could easily afford the mortgage but don't have £30k in cash for the deposit. You could make the case for the LTV rates being too tight before, but its swung far too far the other way. We have no problem at all with making mortgage (or any other bill) payments, but the minimum LTV for remortgaging at a sensible interest rate has gone from 95% to 80%. Which in a falling market means we're stuck in our Halifax SVR deal. Which as I say is OK as we're comfortably off, but annoying at the same time.

Percy1983

Rochdale_Pioneers wrote: »

We dropped off our 5 year fixed deal in May. Payments droped £120 a month, and we looked at overpaying by that amount or a little more. But as we've just had our 3rd child and my wife is on maternity leave, we're diverted the cash onto some baby-related capex.

The report makes the same point I keep making - sales are (at least in the north east) virtually dead. The only way anyone on my street has been able to sell has been to either default and get reposessed, or part-ex. My neighbour a few doors up had the house up for sale for 12 months before doing a part-ex deal with Barratts. They have now dropped the price down to "why can we not sell this property" prices and they still have no punters interested.

For me there are two issues. One, the markup banks are making on mortgage rates above base rate is quadruple what it was. And more importantly two, the level of deposit required means that many potential punters could easily afford the mortgage but don't have £30k in cash for the deposit. You could make the case for the LTV rates being too tight before, but its swung far too far the other way. We have no problem at all with making mortgage (or any other bill) payments, but the minimum LTV for remortgaging at a sensible interest rate has gone from 95% to 80%. Which in a falling market means we're stuck in our Halifax SVR deal. Which as I say is OK as we're comfortably off, but annoying at the same time.

I think that is the point, many it has just freed up cash for an easier/better/more wasteful life and not many are actually overpaying.

Good look with the little'un glad its figured out for you.