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Mortgages repaid at record rate
RenovationMan
Posts: 4,227 Forumite
"Mortgages repaid at record rate
£9.1bn paid back in second quarter of year as nervous households seek to cut borrowing.
Britain’s nervous homeowners paid down a record £9bn on their mortgages between April and June as they struggled to restore their tattered finances.
Figures released by the Bank of England on Wednesday show that a record £9.1bn was paid back in the second quarter of this year alone – the largest figure ever, amounting to 3.5% of consumers’ post-tax income.
During the boom years, by contrast, mortgage equity withdrawal peaked at 5.6% of post-tax income, in late 2006.
When house prices were rising rapidly, mortgage equity withdrawal boosted consumer spending as homeowners extended the mortgages on their existing property and spent the proceeds.
But since the recession began in mid-2008, the total owed by the nation’s mortgage borrowers has declined by £92.9bn. There has now been net mortgage repayment every quarter for more than three years.
Howard Archer, of consultancy IHS Global Insight, said: “the record net injection of housing equity in the second quarter points to a strong desire and perceived need of many people to improve their personal financial balance sheets given high debt levels and serious concerns over the economic situation and jobs.”
Pessimism about the future outlook for house prices, which have been drifting down in most parts of the country over the past year, is also likely to have persuaded households to try to reduce their borrowings.
The news provides fresh evidence that with the economic outlook darkening, households are in no mood to spend. Separate figures released earlier this week showed that while credit card lending is still rising, it is doing so very slowly, at just £49m in October.
The Bank said the reversal from mortgage equity withdrawal to repayment since the start of the credit crisis also reflected the sharp decline in housing transactions since the boom."
http://www.guardian.co.uk/money/2011/nov/30/homeowners-repay-mortgages-record
£9.1bn paid back in second quarter of year as nervous households seek to cut borrowing.
Britain’s nervous homeowners paid down a record £9bn on their mortgages between April and June as they struggled to restore their tattered finances.
Figures released by the Bank of England on Wednesday show that a record £9.1bn was paid back in the second quarter of this year alone – the largest figure ever, amounting to 3.5% of consumers’ post-tax income.
During the boom years, by contrast, mortgage equity withdrawal peaked at 5.6% of post-tax income, in late 2006.
When house prices were rising rapidly, mortgage equity withdrawal boosted consumer spending as homeowners extended the mortgages on their existing property and spent the proceeds.
But since the recession began in mid-2008, the total owed by the nation’s mortgage borrowers has declined by £92.9bn. There has now been net mortgage repayment every quarter for more than three years.
Howard Archer, of consultancy IHS Global Insight, said: “the record net injection of housing equity in the second quarter points to a strong desire and perceived need of many people to improve their personal financial balance sheets given high debt levels and serious concerns over the economic situation and jobs.”
Pessimism about the future outlook for house prices, which have been drifting down in most parts of the country over the past year, is also likely to have persuaded households to try to reduce their borrowings.
The news provides fresh evidence that with the economic outlook darkening, households are in no mood to spend. Separate figures released earlier this week showed that while credit card lending is still rising, it is doing so very slowly, at just £49m in October.
The Bank said the reversal from mortgage equity withdrawal to repayment since the start of the credit crisis also reflected the sharp decline in housing transactions since the boom."
http://www.guardian.co.uk/money/2011/nov/30/homeowners-repay-mortgages-record
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Comments
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Oops, just spotted that this has already been posted.
EDIT: Oh well, it's such good news that it deserves to be stated twice! I'm a great believer in mortgage overpayments and we've overpaid £47,000 over the last 2 years of owning our new house, representing a 16% overpayment.
My aim is to come out of recession in a financially better position than when I entered it. Looks like I'm not going to be alone in this.0 -
good for you, sensible planning.0
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Yeah, been posted - but it's true ..... most people have spare cash on the hip and are paying down debt ..... such a sensible thing to do.
It puts paid to the arguement that people haven't got two shillings to rub together!
I'm sticking my neck on the line here - but - I guess most people can easily save £500 a month ... some much, much more. I'm not saying what I save (I have no debt) as I will just get shot down, but it is far in excess of £2,000 a month and I'm not trying hard at all, it just happens.Bringing Happiness where there is Gloom!0 -
the record net injection of housing equity in the second quarter points to a strong desire and perceived need of many people to improve their personal financial balance sheets given high debt levels and serious concerns over the economic situation and jobs.”
Woo hoo. Yeah!0 -
RenovationMan wrote: »Oops, just spotted that this has already been posted.
EDIT: Oh well, it's such good news that it deserves to be stated twice! I'm a great believer in mortgage overpayments and we've overpaid £47,000 over the last 2 years of owning our new house, representing a 16% overpayment.
My aim is to come out of recession in a financially better position than when I entered it. Looks like I'm not going to be alone in this.
I'm with you. I'm overpaying mine by over £2k a month and will be mortgage free in 5-6 years. I'm also paying more in to my pension each month to take advantage of the volatility. Low interest rates have been very good for those still in employment. Those with common sense are using the money saved good purpose.
I fear for those who cannot do that (who a genuinely feel sorry for) and those that just see it as more to spend on a lifestyle they cannot afford (who I do not feel sorry for) when interest rates return to a more normal level.
Some point down the road, they are going to have to convert to repayment basis (or sell up), pay 2-3 times more per month due to higher interest rates, wont have the equity to convert credit card debt to mortgage debt. Not only will they see a reduction in living standards due to them not being able to get easy credit again, they are going to see a double hit as they have to pay back what they borrowed in the "good" days to fund a lifestyle.
What we have had up to now has been a complete doddle compared to what is coming for some people.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
Indeed, with the shift towards increasing and record breaking repayment of mortgages, you have to wonder why some still believe that when rates rise, it will cause significant forced sellers ensuring a significan house price correction.
Certainly these figures are an indication that the low rates are allowing homeowners to pay down their debts thus decreasing their amortization period.
Woo hoo. Yeah!
Facinating additional to the thread.:wall:
What we've got here is....... failure to communicate.
Some men you just can't reach.
:wall:0 -
RenovationMan wrote: »Oops, just spotted that this has already been posted.
EDIT: Oh well, it's such good news that it deserves to be stated twice! I'm a great believer in mortgage overpayments and we've overpaid £47,000 over the last 2 years of owning our new house, representing a 16% overpayment.
My aim is to come out of recession in a financially better position than when I entered it. Looks like I'm not going to be alone in this.
Didn't this trigger the early repayment charge?0 -
Ronaldo_Mconaldo wrote: »Didn't this trigger the early repayment charge?
No, I'm allowed to overpay by 10% of the capital balance per year. In year one I repaid £30k (10% of £300k) and in year two I repaid £17k (6.3% of £270k).0 -
Yeah, been posted - but it's true ..... most people have spare cash on the hip and are paying down debt ..... such a sensible thing to do.
It puts paid to the arguement that people haven't got two shillings to rub together!
I'm sticking my neck on the line here - but - I guess most people can easily save £500 a month ... some much, much more. I'm not saying what I save (I have no debt) as I will just get shot down, but it is far in excess of £2,000 a month and I'm not trying hard at all, it just happens.
Are you saving for a wife upgrade ?0 -
IveSeenTheLight wrote: »Indeed, with the shift towards increasing and record breaking repayment of mortgages, you have to wonder why some still believe that when rates rise, it will cause significant forced sellers ensuring a significan house price correction.
Certainly these figures are an indication that the low rates are allowing homeowners to pay down their debts thus decreasing their amortization period.
The BOE disagrees with you.
This isn't overpayments per se. This has already been discussed. There will be some overpayments in there at times like this, of course there will, but this isn't making up "record breaking repayments" as you have suggested.
Imagine someone with a credit card, with a limit of £4,000.
They are repaying £100 per month, which just about covers the £90 interest. So they pay down £10 each month.
They then switch that credit card for another with a limit of £5,000, because this switch is available. They now have an extra £1,000 to spend, which they will, and are now paying £110 a month, but still paying off £10 of the balanace each month due to the (now) higher interest costs.
Your argument implies that because they are now paying off £110 a month, rather than £100 per month, that they are paying down more of their debts. They are not.
However, if they are stuck with their initial 4k limit, and don't take out any extra spending, each month, that £100 payment pays down the debt a little more, meaning that instead of £10 being paid off the balance, it's £11, £12.....£13.
That's whats happening at the moment with mortgages. People are not moving. They are not MEW'ing. They are not switching mortgages. They are simply paying a little bit more off each and every month.
Hence you have the figures you do.
It's not people shoveling overpayments into their mortgages that is creating the figures. There will be those people, but according to the BOE, they are the minority, not the majority making up the figures.0
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