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The amount of housing equity withdrawal (HEW) has swung from being significantly positive before the financial crisis and recession, to negative over the past few years. The net effect of a chain of housing transactions is typically a large equity withdrawal. The fall in the number of housing transactions is therefore likely to have been a key driver of the fall in equity withdrawal since the financial crisis. There is little sign that, at the aggregate level, households are making an active effort to pay down debt more quickly than in the past.
To explain what is meant by housing equity withdrawal (HEW), it is useful to first define housing equity itself. The stock of housing equity is the portion of housing wealth which does not have lending secured on it:
The stock of housing equity can change in three main ways: through changes in the stock of secured lending when households take out or repay debt; through changes in the stock of housing wealth when new properties are built or improvements are made to existing properties;!2) and from revaluations of the stock of housing wealth due to changes in house prices. The balance of the first two ways of changing equity (ie excluding revaluations) in each period is classed as HEW, which is calculated by the Bank of England.(3)(4)
In 2008, HEW turned negative for the first time since the 1990s. That signified that the household sector as a whole was injecting equity into housing after a long period of withdrawals. While it might be tempting to interpret this as an active effort by households to pay down debt more rapidly than in the past, it is not clear that this is the case.
In practice, HEW summarises the net effect of many different ways in which individual households might inject or withdraw housing equity. For example, a homeowner might take out a further advance on their mortgage and so withdraw housing equity. Another homeowner might make improvements to their home and so inject housing equity. And HEW can also be affected by housing market transactions. When households, in aggregate, are withdrawing more equity than they are injecting, HEW is positive, and when they are injecting more than they are withdrawing, HEW is...