A comparative study in the UK and Australia shows housing equity withdrawal is not all about homeowners having a good time, but often about drawing on their biggest asset, the roof over their heads, to get through a tough time.
A team of researchers at RMIT University and Durham University have been researching the mortgage choices of Australian and UK homeowners over five years (2001-2005). This was a period when house prices boomed and innovation in mortgage products made access to home equity easier than it had ever been. Using survey data that tracks the same households through every year, the research is monitoring what prompts households’ use of a growing range of flexible mortgages and low-cost refinancing opportunities, enabling them to draw from housing wealth and release money to spend on other things.
Findings suggest that the popular perception of equity withdrawal as funding “champagne moments”,
luxury purchases, holidays and the like, can be far from the truth. In fact many equity borrowers have personal circumstances, such as pregnancy, young children, deteriorating financial situations and separation that are associated with pressing spending needs and reductions in income.
Researchers said the credit crunch is not just precipitating a crisis in the finance community, it may prompt a crisis of welfare, too. Without the option to use mortgages to channel housing wealth in to spending money, families under pressure lose access to their most significant asset base for welfare and are forced to look to other ways of getting by.
The Australian research team is Professor Gavin Wood and Sharon Parkinson. Their project, “Housing Wealth and Welfare: Unlocking Housing Wealth over the Life Course”, is funded by the Australian Research Council. The UK researchers are Dr Beverley Searle and Professor Susan J Smith, who will
be among a small group of international experts visiting Melbourne in February to take part in a forum, Housing Mortgages and Financial Turmoil.
For more information visit www.rmit.edu.au/gsssp/ahuri/hmft