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Mortgage Equity Withdrawal - The Refinancing Trend
By Paul Foley
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 2005).

Mortgage Equity Withdrawal is a measure of the equity Britons have extracted from their homes but which they have not re-invested 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 post-tax 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 pick-up 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

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