Britain’s homeowners are heading for bankruptcy

People have started taking money out of their properties to finance consumption once again. But this is not the good news that it may seem. Back in the fourth quarter of 2003, mortgage equity withdrawal (which is the amount of cash the household sector extracts from its housing stock but does not reinvest in property) hit 9% of post-tax income in the UK, or £17.5bn.

People have started taking money out of their properties to finance consumption once again. But this is not the good news that it may seem. Back in the fourth quarter of 2003, mortgage equity withdrawal (which is the amount of cash the household sector extracts from its housing stock but does not reinvest in property) hit 9% of post-tax income in the UK, or £17.5bn.

The explanation for this was simple: sharply rising house prices and falling interest rates meant people could extract money from their homes without having to increase their monthly mortgage payments. But the MEW boom was not sustainable and as house price growth flattened and interest rates rose, MEW steadily fell to 3.2% in the first quarter of this year. Then, in what came as a surprise to many, it jumped again to hit £8.7bn, or 4.2% of post-tax income in the second quarter of this year.

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James Ferguson qualified with an MA (Hons) in economics from Edinburgh University in 1985. For the last 21 years he has had a high-powered career in institutional stock broking, specialising in equities, working for Nomura, Robert Fleming, SBC Warburg, Dresdner Kleinwort Wasserstein and Mitsubishi Securities.