Mortgage Equity Withdrawal The Refinancing Trend

Mortgage Equity Withdrawal the​ Refinancing Trend
Mortgage Equity Withdrawal is​ the​ formal name for equity refinance,​ reverse mortgages or​ simply home loans based on​ equity as​ the​ security for the​ loan.
Mortgage Equity Withdrawal rose to​ 8. 7 billion pounds in​ the​ second quarter of​ this year to​ its highest since the​ third quarter last year,​ official data showed on​ Tuesday 4th Oct 2018.
Mortgage Equity Withdrawal is​ a​ measure of​ the​ equity Britons have extracted from their homes but which they have not reinvested in​ property.
Sharply rising house prices in​ the​ last few years have encouraged a​ trend where Britons refinance their mortgages to​ extract cash which many economists say has helped support spending.
The Bank of​ England said that Mortgage Equity Withdrawal was up sharply from 6. 437 billion in​ the​ first quarter of​ this year although it​ is​ still well below the​ 14. 5 billion seen one year ago,​ when house prices were rising more than 20 percent annually.
The Bank of​ England has since cut interest rates by a​ quarter of​ 1% to​ 4. 5 percent which could support Mortgage Equity Withdrawal in​ coming months,​ particularly as​ there are signs that the​ property market may be stabilizing after a​ year of​ stagnation.
As a​ percentage of​ posttax income,​ Mortgage Equity Withdrawal rose to​ 4. 2 percent from 3. 2 percent in​ the​ first quarter of​ the​ year but is​ well down on​ 7. 3 percent seen a​ year ago.
Mortgage Equity Withdrawal appears to​ have found its way into increased holdings of​ financial assets equities,​ bonds as​ much as​ extra spending,​ said Geoffrey Dicks,​ UK economist at​ RBS Financial Markets.
Generally the​ pickup in​ Mortgage Equity Withdrawal is​ probably indicative of​ more `normalization of​ the​ housing market but while it​ is​ saved rather than spent,​ the​ policy implications are not huge.
Official data last month September showed the​ saving ratio rose to​ 5 percent in​ the​ second quarter of​ this year from 4. 5 percent in​ Q1 also of​ this year.
Separate figures showed UK residential construction barely grew in​ September,​ putting in​ its weakest monthly performance since May.
But what does this mean in​ real terms?
There are several key points in​ this statement,​ these are
1. People are refinancing their homes because of​ increased value
2. People are not necessarily spending the​ money on​ the​ property
3. People are not necessarily spending the​ money in​ the​ high street
These three points are important to​ all of​ us,​ not just the​ policy makers. Here’s why.
Let’s consider the​ first point,​ people are refinancing there homes because the​ equity has grown rapidly.
This statement tells us that the​ housing market although not sky rocketing as​ it​ was a​ couple of​ years ago,​ is​ none the​ less still rising.
The second point tells us that when people effectively withdraw this money it​ is​ not to​ improve the​ home itself,​ hence the​ equity of​ the​ property will not grow at​ a​ better rate than market rate.
The third point is​ perhaps most telling,​ people are not taking the​ money and spending it​ in​ a​ hap hazard manner but are potentially saving it​ bonds,​ shares,​ bank accounts.
So what do this mean for us?
Well,​ it’s a​ bit of​ mixed signals heads up if​ you​ like.
The general population property owners are slipping into ever increasing levels of​ debt if​ you’re refinancing your mortgage or​ ‘freeing up equity’ as​ the​ agents put it,​ you​ are effectively borrowing money unless it’s a​ reverse mortgage.
People who are refinancing are not improving the​ quality of​ the​ property with the​ money and so if​ the​ market takes a​ fall their property will devalue as​ much as​ the​ next property whereas if​ they’d returned some of​ the​ capital into improvements they would at​ least be sitting on​ a​ lesser slump in​ value.
Finally,​ and perhaps the​ most damming sign is​ that people are saving more,​ this is​ not a​ good sign. in​ a​ healthy economy the​ rate of​ saving is​ low,​ this is​ primarily because confidence is​ high people aren’t worried about the​ bills or​ their jobs but the​ fact that more people are now starting to​ save money rather then spending it​ means that the​ retail sector will be taking a​ hit,​ this means that the​ bottom end jobs will be in​ danger,​ this in​ turn has a​ knock on​ effect in​ the​ service sector and becomes a​ vicious circle the​ end result being market stagnentation .
But what this trend does illustrate quite simply is​ that you​ can potentially get more money back in​ savings interest than you​ pay out in​ refinancing interest so at​ the​ moment the​ smart moneys in​ equity refinance.

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