Monday, 3 March 2008
Homeowners still pulling out cash from their homes
(Click on the chart for a larger image).
Homeowners are still at it; they are still pulling out cash from their homes using mortgage equity loans. During the third quarter of 2007, homeowners borrowed £10.5 billion, taking the 12 month total up to £47 billion.
Currently, mortgage equity withdrawal represents almost 5 percent of disposable income. This huge expansion of personal debt is propping up UK consumption expenditure and ultimately economic growth.
But will it continue? Not if house prices slow. A crash wipes out equity and when the equity evaporates, so do the loans. This means that the housing crash will feed directly into lower consumption and accelerate the UK's slide into recession.