Tuesday, 6 January 2009

The great payback

I meant to post this chart last week when the Bank of England first published the numbers on home equity withdrawal. As Housing prices crash and home equity evaporates, people have found it increasingly difficult to pull cash out of their homes through home equity loans. In fact, debt serfs have actually begun to paydown their debt. During the third quarter of this year, the payback amounted to 2.4 percent of post tax income.

For the first time in a decade, household debt is beginning to fall.


JKA on Economics UK said...

The "pay back" accounted for 2.4% of post tax income, which meant that adjusted incomes fell by 3.4% compared to prior year Q3.

Hence the squeeze on consumer spending.

Anonymous said...

Not necessarily JK. My payments stay the same, so theres no impact on my net disposable, but the interest rate is down so a little bit of capital is paid off each month instead.

Anonymous said...

I wouldn't say it was the "debt serfs" paying back, it's probably people with low mortgages and savings, like me.

When I was paying 5% on my mortgage and earning 5% on my savings the redemption fee made paying of unattractive. Now my savings are earning 2%, and don't look like going up for a while, I'll pay the redemption fee and get rid of the mortgage.

JKA on Economics UK said...

The adjustment to incomes is evident in the data. In 2007, incomes were boosted by the growth in post tax income plus the HEW growth, stimulating expenditure.

In 2009, the HEW factor was negative. The adjusted comparison effected a fall of 3.4%.

JKA on Economics UK said...

In 2008 , the HEW factor was negative.

K T Cat said...

I read elsewhere that this fall in household debt actually reflects loan defaults and not savings. I wish I had the link to offer, but I don't, so take with a grain of salt.