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Mortgage Equity Withdrawal in Australia and Britain: Towards a Wealth-fare State?

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Author Info

  • Sharon Parkinson
  • Beverley Searle
  • Susan Smith
  • Alice Stoakes
  • Gavin Wood
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    Abstract

    Across the decade to 2007, a combination of house price appreciation and relaxed credit constraints gave a boost to consumption through the mechanism of mortgage equity withdrawal (MEW). Arguably, this kept developed economies buoyant, even through periods of recession. This paper uses panel data on British and Australian homeowners to show that, notwithstanding its macro-economic effects, such borrowing has far-reaching implications for the micro-economy of households. The data indicate that, for the period 2001-2005, equity borrowing was a common tactic. The sums involved were not trivial, were not limited to older cohorts, or the province simply of the rich. In fact, the events and circumstances associated with equity borrowing at the zenith of the last housing cycle were consistent with an insurance, as well as a general consumption, role for MEW. As house prices fall and credit constraints are re-introduced, the options for such borrowing will shrink. Recent financial shocks may, by reducing the availability of a key channel from housing wealth into consumption, prompt a crisis of welfare. They pose challenges for housing and social policy as well as for economic management.

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    File URL: http://www.informaworld.com/openurl?genre=article&doi=10.1080/14616710903357185&magic=repec&7C&7C8674ECAB8BB840C6AD35DC6213A474B5
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    Bibliographic Info

    Article provided by Taylor and Francis Journals in its journal European Journal of Housing Policy.

    Volume (Year): 9 (2009)
    Issue (Month): 4 ()
    Pages: 365-389

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    Handle: RePEc:taf:eurjhp:v:9:y:2009:i:4:p:365-389

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    Web page: http://www.informaworld.com/smpp/title~content=t713700559

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    Web: http://www.tandf.co.uk/journals/subscription.asp

    Related research

    Keywords: Mortgage equity withdrawal; mortgage debt; equity borrowing; housing equity; precautionary savings; panel data;

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    Cited by:
    1. Veronica John Muellbauer & Veronica David M Williams, 2012. "Credit conditions and the real economy: the elephant in the room," BIS Papers chapters, in: Bank for International Settlements (ed.), Property markets and financial stability, volume 64, pages 95-101 Bank for International Settlements.
    2. Beverley Searle, 2011. "Recession and housing wealth," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 33-48, February.
    3. Dag Einar Sommervoll & Gavin Wood, 2011. "Flips, flops and foreclosures: anatomy of a real estate bubble," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 66-85, February.

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