Mortgage Equity Withdrawal

Kennyboy66

Now I know that these figures don't exactly equate with people over paying off their mortgages (just as pre 2008 they didn't equate to people spunking their money on holidays and massive TV's), but we have now had 21 consecutive quarters of negative mortgage equity withdrawal (- MEW)

The cummulative from April 2008 is now £209 billion, not only that but the pace of negative MEW is increasing, with a record £15 bn in Q2 2013.

This was higher than the biggest ever MEW in a single quarter.

For reference the total MEW in the boom years from 1999 - 2008 was £235 bn - arguably we will have wiped out all that MEWing within the next 8 weeks.

What does this mean ? Probably that once people have the confidence that the recovery is sustainable there is a huge capacity for spending.


Perhaps (to misquote Billy Bragg) "the boom times are just around the corner".

All the data.

http://www.bankofengland.co.uk/statistics/Pages/hew/2013/Jun/default.aspx

Graham_Devon

Kennyboy66 wrote: »

Now I know that these figures don't exactly equate with people over paying off their mortgages (just as pre 2008 they didn't equate to people spunking their money on holidays and massive TV's), but we have now had 21 consecutive quarters of negative mortgage equity withdrawal (- MEW)

The cummulative from April 2008 is now £209 billion, not only that but the pace of negative MEW is increasing, with a record £15 bn in Q2 2013.

This was higher than the biggest ever MEW in a single quarter.

For reference the total MEW in the boom years from 1999 - 2008 was £235 bn - arguably we will have wiped out all that MEWing within the next 8 weeks.

What does this mean ? Probably that once people have the confidence that the recovery is sustainable there is a huge capacity for spending.


Perhaps (to misquote Billy Bragg) "the boom times are just around the corner".

All the data.

http://www.bankofengland.co.uk/statistics/Pages/hew/2013/Jun/default.aspx

Or a huge capacity for borrowing, dependant on how you want to look at it.

I don't believe that currently it was as easy as it was in 2008 to simply MEW. So that will be an issue, as will all those who got burned refraining from doing so.

michaels

I mewed 50k yesterday but then on IO it is only costing me 100 quid a month - does that help?

Wheezy_2

Graham_Devon wrote: »

Or a huge capacity for borrowing, dependant on how you want to look at it.

But this is about negative MEWing.

wotsthat

Some people will have used the recession to improve their finances either by just getting on with paying the mortgage or unwillingly as they've been unable to MEW.

A now aging BoE study suggested that people weren't actively overpaying their mortgages but just making monthly payments and moving less. IMO as and when borrowing becomes more expensive a wall of cash will hit mortgages via offset accounts and saving accounts where interest rates exceed borrowing rates.

On the other side of the equation as transactions continue to increase and new housing stock is added then HEW will start to move the other way.

Good news for most people as they'll have reduced their vulnerability to interest rate rises and negative equity. It makes a crash much less likely.

Kennyboy66

michaels wrote: »

I mewed 50k yesterday but then on IO it is only costing me 100 quid a month - does that help?

No - because you will just be saving it in another account.

Get spending.

IveSeenTheLight

michaels wrote: »

I mewed 50k yesterday but then on IO it is only costing me 100 quid a month - does that help?

I'm about to MEW on a couple of my BTL's so I can invest more into my family home.

Can't wait till the build is finished so we can move into the home.

It's a nice feeling to know we are contributing to the supply of family homes and even better that it is to our design / specification

Loughton_Monkey

It is somewhat irrational that people tend to pay down debt, even if it is very 'cheap' debt, in times of uncertainty. One would tend to predict many people wishing to keep 'a bit of cash' in their trousers just in case....

Surely, though, behind those figures lies a relatively mundane reason surrounding the severe reduction in house buying/selling activity.

Either way, I tend to take my usual miserable old fundamental economics view that 'spending' is not necessarily a good thing.

Using debt to spend on anything is not in my view positive at all. It simply advances things. Gives a false impression of 'wealth' and ultimately creates a credit bubble that must burst.

Using debt to invest, however, is far better.

But even when spending comes from normal revenue (as opposed to debt) we have various types of spending. When we buy a manufactured good, then labour has turned raw materials into something more valuable. Wealth has (for a time) been created - but it will usually depreciate at a rapid rate.

Spending on services (say gardening) really doesn't have that 'wealth creation' aspect at all, but does of course shift money from one individual to another (generally from an affluent person to a less affluent person, but not always).

Spending on imported goods always results in wealth (Cash) leaving the UK, which provides less wealth to "swish around" our economy. So I'm not sure this type of spending is to be welcomed in great quantity.

Overall, though, it's a double edged sword.....

Spending is "good" generally. It is a benign but efficient way of exchanging labour for cash, cash for goods/services, and thus profits for businesses and individuals. A virtuous circle one might say.

The bad side of it, though, is that at every turn, our Chancellor is taking his substantial slice. Whether it be VAT, Income tax, NI, Corporation tax... he's raking it in at every corner. So now to ascertain whether spending (or an increase of it) is "good". If the extra were to be used to reduce taxes elsewhere [thus keeping revenue to budget] then fine. But extra spending almost certainly is treated by Chancellors as 'extra' income to squander on bigger benefits, more civil service staff, bigger offices, or some other 'Quango'....

Personally, I tend not to get excited by spending per se. I get far more excited when I learn of new investment in new enterprise which produces goods on which foreigners will spend, or (just as good) we will spend in replacement for buying foreign goods.

Loughton_Monkey

michaels wrote: »

I mewed 50k yesterday but then on IO it is only costing me 100 quid a month - does that help?

I actually "UNMEWED" £86K today, so I more than cancelled you out!

The reason was quite simple. I did MEW of well over £200K a few years ago since receiving 4% interest on it was far more exciting and profitable than 'saving' 1½% interest on my Offset.

Sadly, this particular bond has now matured, and I can't find a much netter home for it than 1½% (1.875% gross basically) so down into the mortgage it went.

The necessity has upset me to the point where I might venture an extra gin & tonic today..... and sun having gone over the yardarm, I fancy it now.

michaels

Loughton_Monkey wrote: »

I actually "UNMEWED" £86K today, so I more than cancelled you out!

The reason was quite simple. I did MEW of well over £200K a few years ago since receiving 4% interest on it was far more exciting and profitable than 'saving' 1½% interest on my Offset.

Sadly, this particular bond has now matured, and I can't find a much netter home for it than 1½% (1.875% gross basically) so down into the mortgage it went.

The necessity has upset me to the point where I might venture an extra gin & tonic today..... and sun having gone over the yardarm, I fancy it now.

I feel your pain. I am hoping my latest investment wil supply a decent return but it is not the risk free deal I was on before with money costing 2.5% earning 5%. I am also now long housing so I fear a side effect is I may end up thanking Hamish's posts

wotsthat

Graham_Devon wrote: »

Or a huge capacity for borrowing, dependant on how you want to look at it.

How else are we meant to buy holiday homes? All that equity from HPI, years of making overpayments like the good bear I am, offsetting c£20k at 5.68% from 0% credit cards; along comes a crash and I can borrow at less than the rate of inflation and buy at prices that became affordable.

In the circumstances it seemed rude to contribute towards negative HEWing.