This article was downloaded by: [University of Notre Dame Australia] On: 26 April 2013, At: 00:18 Publisher: Routledge Informa Ltd Registered in England and Wales Registered Number: 1072954 Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK International Journal of Housing Policy Publication details, including instructions for authors and subscription information: http://www.tandfonline.com/loi/reuj20 Mortgage Equity Withdrawal in Australia and Britain: Towards a Wealth-fare State? Sharon Parkinson a , Beverley A. Searle b , Susan J. Smith c , Alice Stoakes a & Gavin Wood a a AHURI-RMIT Research Centre, RMIT University, Melbourne, Australia b Geography Department, Durham University, UK c University of Cambridge, UK Version of record first published: 15 Dec 2009. To cite this article: Sharon Parkinson , Beverley A. Searle , Susan J. Smith , Alice Stoakes & Gavin Wood (2009): Mortgage Equity Withdrawal in Australia and Britain: Towards a Wealth-fare State?, International Journal of Housing Policy, 9:4, 365-389 To link to this article: http://dx.doi.org/10.1080/14616710903357185 PLEASE SCROLL DOWN FOR ARTICLE Full terms and conditions of use: http://www.tandfonline.com/page/terms- and-conditions This article may be used for research, teaching, and private study purposes. Any substantial or systematic reproduction, redistribution, reselling, loan, sub- licensing, systematic supply, or distribution in any form to anyone is expressly forbidden. The publisher does not give any warranty express or implied or make any representation that the contents will be complete or accurate or up to date. The accuracy of any instructions, formulae, and drug doses should be independently verified with primary sources. The publisher shall not be liable for any loss, actions, claims, proceedings, demand, or costs or damages
Transcript
This article was downloaded by: [University of Notre Dame Australia]On: 26 April 2013, At: 00:18Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954Registered office: Mortimer House, 37-41 Mortimer Street, London W1T 3JH,UK
International Journal of HousingPolicyPublication details, including instructions for authorsand subscription information:http://www.tandfonline.com/loi/reuj20
Mortgage Equity Withdrawal inAustralia and Britain: Towards aWealth-fare State?Sharon Parkinson a , Beverley A. Searle b , Susan J.Smith c , Alice Stoakes a & Gavin Wood aa AHURI-RMIT Research Centre, RMIT University,Melbourne, Australiab Geography Department, Durham University, UKc University of Cambridge, UKVersion of record first published: 15 Dec 2009.
To cite this article: Sharon Parkinson , Beverley A. Searle , Susan J. Smith , AliceStoakes & Gavin Wood (2009): Mortgage Equity Withdrawal in Australia and Britain:Towards a Wealth-fare State?, International Journal of Housing Policy, 9:4, 365-389
To link to this article: http://dx.doi.org/10.1080/14616710903357185
PLEASE SCROLL DOWN FOR ARTICLE
Full terms and conditions of use: http://www.tandfonline.com/page/terms-and-conditions
This article may be used for research, teaching, and private study purposes.Any substantial or systematic reproduction, redistribution, reselling, loan, sub-licensing, systematic supply, or distribution in any form to anyone is expresslyforbidden.
The publisher does not give any warranty express or implied or make anyrepresentation that the contents will be complete or accurate or up todate. The accuracy of any instructions, formulae, and drug doses should beindependently verified with primary sources. The publisher shall not be liablefor any loss, actions, claims, proceedings, demand, or costs or damages
whatsoever or howsoever caused arising directly or indirectly in connectionwith or arising out of the use of this material.
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European Journal of Housing PolicyVol. 9, No. 4, 365–389, December 2009
Mortgage Equity Withdrawal in Australiaand Britain: Towards a Wealth-fare State?
SHARON PARKINSON∗, BEVERLEY A. SEARLE∗∗,SUSAN J. SMITH†, ALICE STOAKES∗ & GAVIN WOOD∗∗AHURI-RMIT Research Centre, RMIT University, Melbourne, Australia, **Geography Department,Durham University, UK, †University of Cambridge, UK
Abstract Across the decade to 2007, a combination of house price appreciation and relaxedcredit constraints gave a boost to consumption through the mechanism of mortgage equitywithdrawal (MEW). Arguably, this kept developed economies buoyant, even through periodsof 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 forthe micro-economy of households. The data indicate that, for the period 2001–2005, equityborrowing was a common tactic. The sums involved were not trivial, were not limited to oldercohorts, or the province simply of the rich. In fact, the events and circumstances associatedwith 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 constraintsare re-introduced, the options for such borrowing will shrink. Recent financial shocks may, byreducing the availability of a key channel from housing wealth into consumption, prompt acrisis of welfare. They pose challenges for housing and social policy as well as for economicmanagement.
Across the decade to 2007, a combination of house price appreciation and relaxedcredit constraints were implicated in a wave of consumption that kept developedeconomies afloat even through periods of recession (Benjamin et al., 2004; Iacoviello,2004). These ‘wealth effects’ of housing became a hot topic among economists asthe current cycle reached its zenith, and few dispute the implications of rising houseprices for the macro-economy (Case et al, 2005). While it might be hard to establishprecisely how house prices are channelled into consumption (Attanasio et al., 2005),it seems likely that a growing proportion of the overall wealth effect consists ofmortgage equity withdrawal (Smith & Searle, 2008), or as Muellbauer and Murphy
Correspondence Address: Gavin Wood, AHURI-RMIT Research Centre, RMIT University, GPO Box2476V, Melbourne, Victoria 3001, Australia. Email: [email protected]
(2008) term it ‘collateral effects’. Mortgage equity withdrawal occurs when peopleuse their owned homes as collateral for loans that can be spent on other things. Thisrarely represents the largest stream of housing equity withdrawal (this is achievedby trading down and last-time sales), and not all mortgage markets are ‘complete’enough to allow borrowers to draw from, as well as pay off, their loans. However, incountries where mortgage borrowing can be used to fund non-housing consumption,the potential to tap into home equity has become central to the way home-buyinghouseholds manage their financial resources (Smith et al., 2009). This paper usespanel data from countries positioned at the crest of the mortgage equity withdrawalwave, to argue that while such borrowing may (or may not – this is debatable)be critical for the macro-economy, it has far-reaching implications for the micro-economy of households and therefore for housing and social policy.
The empirical case studies we use to examine this refer to Britain and Australia.These countries have followed somewhat different paths to their present high rates ofhome-ownership. Thanks to an abundance of low-cost land, rates of owner-occupationin Australia soared in the 1950s (the post-war period) as cheap credit and regulatedminimum wages combined to facilitate access to a growing tenure sector (Paris,1994). In contrast, a serious housing shortage in Britain’s war-damaged economyprompted successive British governments to invest heavily in social renting – a tenuresector which, for a while, increased alongside owner-occupation, as the private rentalmarket (which had previously dominated the market) continued to decline. It was not,however, until a Conservative government led by Margaret Thatcher offered counciltenants the ‘right to buy’ their homes at a discount that rates of owner-occupation inBritain converged with those in Australia. But while there are many historical andinstitutional differences between these jurisdictions, one thing they have in commonis a mortgage market sufficiently well-developed to provide a permeable interfacebetween housing wealth and spending money (see Girouard, 2009). The variable ratemortgage is typical, while a round of product innovation has, in the decade to 2007,not only issued borrowers with the incentive to refinance (a common strategy amonghome buyers looking to unlock a proportion of home equity in a single lump sum), butmade it easy – even routine – to borrow from housing wealth using an existing loan(Schwartz et al., 2009; Smith et al., 2002). A growing range of increasingly flexiblemortgages means that, for a window of at least ten years, households in societiessuch as Australia and Britain had more scope to spend from housing wealth than everbefore; more possibilities to borrow against their most important asset than they arelikely to have again.
Everything changed in 2007–2008, as credit constraints took centre stage and pricesbegan to slide across the UK, as well as in certain submarkets of Australian cities.Although the UK and Australian mortgage markets are rather different from those inthe USA (in the former jurisdictions, most lending is still by deposit-taking banks,securitisation is less common, and the subprime sectors are smaller), neither thehousing markets nor the banking sectors of these economies have been sufficiently
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insulated to escape the so-called ‘credit crunch’. Although the run of data in thispaper does not capture the latest trends, mortgage equity withdrawal is sensitive toprice dynamics, and tends to fall as housing markets slow and credit constraintstighten. These effects will be impacting now on household behaviours. While thefindings reported next do not document this directly, they do show that reducingpeople’s options to spend from housing wealth might have far-reaching – and perhapsunexpected – implications for the wellbeing of households in the new phase of thehousing cycle.
In the next section of the paper we introduce the data, address some key measure-ment issues and describe the analysis. The remaining sections consider, in turn, threecommon conceptions about the links between housing wealth, mortgage borrowingand consumption. First, we tackle the presumption that mortgage equity withdrawalis less significant than other mechanisms (i.e. trading down, last times sales, or themobilisation of other savings and investments) in channelling personal wealth intoconsumption. Second, we challenge the idea that today’s stores of housing wealth areprimarily significant either as a component of inheritance, or as a resource for old age.Finally, we argue that, while mortgage equity withdrawal may be of interest for itsmacro-economic effects, its implications for households’ micro-economic choices –for their decisions around saving, spending and debt – merit greater attention than hashitherto occurred. Crucially, such borrowings are significant for housing and socialpolicy as well as for managing the economy.
Method and Data
In this analysis we compare patterns of mortgage use among homeowners in Britainand Australia, across a four-year period, as measured by the two national longitudinalsurveys: the British Household Panel Survey (BHPS) and the Survey of HouseholdIncome and Labour Dynamics in Australia (HILDA).1 BHPS and HILDA are nation-ally representative longitudinal surveys that record a wide range of socio-economicand demographic information. Sample designs and the scope of the surveys are de-tailed in Lynn (2006) and Watson (2009). Of particular importance in the presentcontext are housing and debt variables. Both surveys elicit the tenure status of re-spondents, as well as (among owners) self-assessed estimates of home prices and(among mortgagors) levels of outstanding mortgage debt.
Commencing in 2001, HILDA has, to date, yielded a total of six waves of data. Inthe first year of the survey the respondent panel sample comprised 7,682 householdsand 13,969 individuals. By 2005 the total number of respondents had declined slightlyto 12,759 individuals from a total of 7,125 households (MIAESR, 2007). No sampleadditions or replacements have occurred. The BHPS started earlier than its Australiancounterpart and now comprises 17 annual waves covering the timeframe 1991–2007. It began as a nationally representative sample of 5,500 British householdscontaining 10,000 individuals. Additional household samples were included to boost
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representation in Scotland and Wales in 1999 and in Northern Ireland in 2001,thereby covering the whole of the UK and raising the total sample size to around10,500 households. In both surveys individuals are re-interviewed each year. Bothsample designs follow members of the original household if they move into newhouseholds as well as adding people to the sample as they join existing households,or reach the age of 16 in BHPS, and 15 years of age in HILDA.
Our research focus is on mortgage equity withdrawal among existing home-ownersand buyers. We are concerned with a particular style of mortgage equity withdrawal,namely that which occurs when owner-occupiers refinance or use flexible mortgagesto add to their outstanding debt. Following Smith and Searle (2008) we refer tothis practice as in situ equity borrowing. ‘Over-mortgaging’ (borrowing more thanis needed for home purchase) following residential relocation is also an importantcomponent of mortgage equity withdrawal, but this is a by-product of moving andrarely prompted simply by the need or desire to borrow from housing wealth. Theanalysis that follows excludes episodes of borrowing that are associated with re-location, in order to focus on the range of attributes and life events that seem, inthemselves, sufficient to prompt people to use their mortgages specifically to drawfrom housing wealth. In practice this means looking from year to year at changes inthe level of outstanding mortgage debt reported by owner-occupiers who have notmoved between adjacent waves.
The analysis concentrates on the years common to both surveys (2001–2005). Itis tempting to use the longer run of years in the BHPS to flesh out the British exam-ple. However, an important objective is to identify and compare cross-nationally theprecipitants of equity borrowing. A common timeframe is essential for comparisonunder ceteris paribus conditions. This particular run of years is especially appositefor its place in a housing cycle that is uniquely synchronised internationally (Re-naud & Kim, 2007). The analysis proceeds using a sample of owner-occupiers thatincludes both mortgagors and outright owners. Neither survey distinguishes betweenmortgages secured against a primary residence and other secured loans. To keepa focus on the role of home equity (which has a dual role as a source of housingservices and an investment vehicle), we have omitted multiple property owners fromthe analysis.2 This is important because secured borrowing is risky. In the event ofdefault, repossession can follow and, for owned homes, this has ramifications forhouseholds’ welfare and social policy as well as for their asset-base.
Owner-occupiers are divided into two groups: ‘equity borrowers’ and ‘equitysavers’. Equity borrowers are homeowners who have not moved in the last 12 monthsbut whose outstanding mortgage debt exceeds that of the previous year.3 Equitysavers are homeowners who have, similarly, not moved in the last year, but whoseoutstanding mortgage debt is less than or equal to the previous year’s outstandingdebt. The ‘savers’ include those who have only paid mortgage interest and whotherefore have an unchanged outstanding debt (but who did, to 2007 at any rate,generally benefit from some house-price appreciation, and so accrued equity, and
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collateral, through this route); this group also includes (for the same reasons) outrightowners with no debt secured against their home.
An unbalanced panel is used (unless otherwise stated); this means that there is adifferent sample size in each survey for each year, partly due to attrition, but alsobecause of: inconsistent reporting of mortgage debt between waves, residential re-location, renters that make the transition into homeownership, household break-upsdue to separation and divorce, and new household formation as dependents leave theparental home and become homeowners during the 2001–2005 timeframe. The effec-tive sample of Australian homeowners ranges from 5,617 in 2002 to 5,201 in 2005,while the UK figures are 8,375 and 8,093, respectively. Missing data for outstandingmortgage debt are more problematic in BHPS than in HILDA: for example in 2002,226 Australian owners (4 per cent of those in the study sample) failed to quantifytheir mortgage debt, whereas in the same year, data were missing for 926 (12.7 percent) of UK owner-occupiers.4 Among the other sources of variation in year-by-yearsample numbers, residential relocation is the most important. For example, between2001 and 2002, 243 Australian owners moved, while in the same period 517 Britishowners moved.
Our approach in this paper is exploratory. It provides, for the first time, a detailedoverview of behaviours around housing wealth and mortgage debt, using carefullyconstructed comparable variables in BHPS and HILDA. It is probably worth empha-sising how time consuming and technically challenging it is to achieve this degree ofcomparability; we are not aware of any other study that has matched the data in thisway. Using simple descriptive statistics and cross-tabulations, the analysis casts lighton the factors shaping decisions around savings, spending and debt, among a panelof British and Australian homeowners across the early years of the 21st century. Thiswas a period of cheap credit, in which mortgage equity borrowing was used to drawfrom housing wealth to an unprecedented extent, in ways that we now know – havingmoved into a new era of credit constraints – is unlikely to happen again. The findingscast light on the implications of this.
Housing Wealth: Collateral Effects
There is considerable interest in the literature on the relative impact of housingversus other asset-generated wealth effects on the macro-economy (Case et al., 2005;Dvornak & Kohler, 2007; Muellbauer, 2006; Poterba, 2000). Mainly, this is concernedwith the extent to which the macro-economy is (or is not) insulated from the impactof housing market dynamics. But there is another critical question. This surrounds theimplications for whole societies of the ‘micro-economic’ adjustments of householdbudgets to the changing character of housing wealth and the restructuring of welfaretransfers.
We are interested in the micro-economic role of housing wealth, that is, its place inhousehold budgeting behaviours. The analysis focuses on just one of the mechanisms
1The sample is income units living in owner occupied housing. An income unitis defined as one or more individual persons whose incomes are assumed to beshared between the persons comprising the unit. We exclude homeowners thatown second properties in all waves, and homeowners who were out of scope inall waves.
transmitting housing wealth into the economy, viz. mortgage equity withdrawal. In aliterature concerned mainly with macro-economic effects, there is considerable debateand little consensus on how wide or well-used this channel might be. In Australia,for example, virtually nothing is published on this: the evidence to date is based on asingle survey conducted in 2005 by the Reserve Bank of Australia, which indicatesthat, viewed cross-sectionally, the bulk of housing equity withdrawal is accountedfor by transactions in the property market (trading down and last-time sales), ratherthan mortgage equity withdrawal (Schwartz et al., 2006, 2008, 2010). However,in a review of the wider range of data resources and published research availablefor the UK, Smith and Searle (2008) suggest that, while the same generalisationholds, equity borrowing accounts for a growing proportion of all housing equitywithdrawal, and for the majority of equity withdrawal events. Beyond that there is adearth of documentation on the frequency, character, predictors or effects of this typeof behaviour.
To address this gap, Tables 1 and 2 provide two measures, of equity borrowing andits incidence. Table 1 measures the propensity of homeowners to engage in equityborrowing across at least one year between 2002 and 2005. This table excludes anyonewho owned other residential property in all waves, as well as those who could notbe tracked down, or who refused interviews, in all waves. A homeowner who ownedother residential property in some waves is included only for the waves in which heor she does not own a second unit. Likewise, if a homeowner refused an interviewin one wave, but did respond in another, he or she is included for the wave in whichhe or she participated. So Table 1 refers to 7,607 Australian homeowners and 9,051British homeowners, each of whom were single-property owners and successfullyinterviewed in at least two adjacent waves between 2001 and 2005. This measureof the propensity to engage in equity borrowing reveals that over a third of UK,and more than two-fifths of Australian homeowners, used their homes as collateralto increase their net mortgage borrowing in at least one year ending between 2002
1 An episode is a one-year interval of time during which a homeowner could have added to his orher outstanding mortgage debt. Episodes are omitted if debt has not been recorded, the homeownerrelocated, the household fractured and both partners moved out, or the homeowner acquired a secondproperty in the corresponding wave. Outstanding mortgage debt is measured on an income unit basis.
and 2005 (the first year, 2001, provides the initial measure of the size of outstandingmortgages).
Table 2 provides a count, or a frequency measure, of the episodes of equity bor-rowing across the same period 2002–2005. In this table, each wave (one calendaryear) is treated as a single episode over which the homeowner has an opportunityto become an equity borrower (i.e. to increase the size of his or her outstandingmortgage). This measure monitors how often a homeowner has chosen to draw downequity by adding to net outstanding mortgage debt over the course of a calendar year.The units of measurement are episodes (individual years in which a household mayor may not increase its mortgage debt), not homeowners. The counts in Table 2 thusrefer to numbers of episodes (not numbers of home-owning households) over thefour years 2002–2005. The total number of episodes (years) in which homeownerscould borrow from, or save into, their mortgage is, in theory, four times the totalnumber of households recorded in Table 1. However, in the Australian sample, 8,969(29 per cent) out of a possible 30,428 episodes are excluded; for Britain the figuresare 11,338 (31 per cent) of a possible 36,204 episodes.5 This reflects above all theuse of an unbalanced panel, in which counts are lost in any year where: the home-owner changed his or her address; there is no record of outstanding mortgage debt;a second property was acquired; or the household splintered due to separation anddivorce, with both partners subsequently moving out of the family home. In the end,this frequency measure reveals that UK and Australian households engaged in equityborrowing in about 20 per cent of episodes between 2002 and 2005. These frequencymeasures mean that each equity borrower in Australia and the UK is responsible foran average 1.4 episodes of mortgage borrowing, and in total around a third of thosewho ever engage in equity borrowing (33 per cent in Australia, 31 per cent in theUK) record two or more net borrowing episodes.
To summarise the position so far, there are three particularly striking findings inthese tables. First, the propensity and frequency of equity borrowing is very similar in
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Table 3. Equity borrowing as a proportion of unmortgaged housing equity
Housing equity of equity borrowers
Median equity Median amount Rate of equityheld prior and percent of Number of borrowing
to borrowing1 equity borrowed episodes2 per home owner
UK AUSUK AUS UK AUS UK Aus£ $ £ % $ % n n rate rate
1Note median equity held is taken from the year prior to borrowing.2The episode sample design is as defined in table 2 and so the number of Australian (UK) episodesof borrowing add up over the time period to the total borrowing episode figures in Table 2 (4,506 inAustralia and 4,605 in UK).
the two jurisdictions. Second, equity borrowing is a common practice involving largenumbers of homeowners. Finally, while it is has been shown elsewhere that serialremortgaging plays only a minor role in mortgage equity withdrawal, it is strikingthat more than one-third of the equity borrowers in this new study record two ormore episodes of equity borrowing within a short timeframe of only four years. Forsome households equity borrowing was, in the early years of this century, becomingreasonably routine.
Table 3 disaggregates the equity borrowing episodes recorded in Table 2 by year.It shows that each episode of equity borrowing involves substantial cash sums. In theUK, for example, equity borrowers typically withdrew between £5,000 and £7,500in any one year, and their Australian counterparts released between A$20,000 andA$26,000. These median amounts – chosen because they mask the extremes – arefar from trivial, and could not be accounted for by payment for holidays or rolloverof unpaid interest. To facilitate the cross-country comparison, Table 3 also calculatesthe median figure for equity borrowing as a percentage of borrowers’ median un-mortgaged housing equity (as estimated for the preceding year). The proportion ofunmortgaged home equity withdrawn through equity borrowing ranges from 9 percent (in 2005) to 13 per cent (in 2003) in the UK and from 9 per cent (2005) to17 per cent (2002) in Australia. Furthermore, some 13 per cent of Australian equityborrowers and 5 per cent of those in the UK sample made a net withdrawal – in a singleyear – which amounts to more than three-quarters of the value of their (self-assessed)unmortgaged housing equity.
Intriguingly, Table 3 also shows that towards the end of the reference period, ashouse prices reached their zenith, the amounts and, in particular, the proportions of
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unmortgaged equity extracted by mortgage borrowing fell. This may reflect the extentto which rising prices outstrip the increase in equity borrowing; equally it might implya reluctance to borrow against property as the housing market slows. It seems thatthe amounts withdrawn have tailed off, but as shown in the last two columns of thetable, the number of borrowing episodes per home owner – the propensity to tap intohousing wealth – has held up.
Klyuev and Mills (2006, 2010) have argued that home assets might, thanks tothe outlet of mortgage borrowing, work by analogy with an ATM, allowing, fromday-to-day, week-to-week and month-to-month, regular withdrawals and injectionsof funds. This kind of activity might roll housing wealth into households budgetingroutines with all kinds of consequences (for example, reducing the appearance ofhaving savings, or substituting for other forms of debt), with or without having amarked net effect on their outstanding balances in a given year. However, it is equallyclear that major withdrawals do occur or accumulate – either in the form of a singlelumpy withdrawal or by a steady accretion of debt (the data do not differentiate) – inamounts which, over time periods of a year, are large enough to suggest it is worthlooking for specific precipitating events.
Before taking up that challenge, there are two other findings of note. First, there isa geography of equity borrowing which speaks to the broad factors constraining orenabling mortgage borrowing. The scatter plots in figures 1a and 1b show this graph-ically, plotting the mean values of all the annual episodes of borrowing documentedover the study period for Australian metropolitan and non-metropolitan regions andfor the UK planning regions.6 For Australia, and to a lesser extent for the UK,there is a strong positive and significant association (ρ = 0.80, p < 0.01 and ρ =0.48, p < 0.01 for Australia and the UK, respectively) between mean regional houseprices and mean equity borrowing.7 In Australia, equity borrowers typically releaserelatively large cash sums in Sydney and Melbourne, where home values are highest;in Tasmania and regional South Australia, where housing is cheap, borrowers releaserelatively small cash sums. Even in the UK, where the association is less marked,equity borrowers in the house price peaks of London and the rest of the south-eastrelease relatively large sums, whereas in the lower-priced regions of Scotland and thenorth-east of England the cash sums are relatively small.
The indication here is that the main constraint on borrowing in the period of studywas collateral (house prices) rather than incomes (which do not vary between regionsas much as house prices),8 repayment capacity, or credit (which was easy and cheapto obtain throughout the reference years). This is consistent with the positioning ofloan-to-value ratios over most other considerations in lending decisions at that time,and a reminder that there is a strong regional and inter-city dimension to house pricedynamics. It also raises the possibility that the large sums released in some majorconurbations (Sydney, Melbourne, London and the South East) are the product ofportfolio rebalancing among households whose wealth has, thanks to high rates ofprice appreciation, become over-invested in their home.
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Figure 1. Equity borrowing and home values: a, Australia; b, UK.Spearman rank correlation coefficients between equity borrowing and locations are ρ = 0.80,ρ < 0.01 (Australia) and ρ = 0.48, p < 0.01 (UK). Figure 1a plots regions that are ranked fromlowest to highest mean house value as follows: Tasmania, Balance of SA, Adelaide, Balance ofQLD, Balance of Victoria, Balance of WA, Brisbane, Perth, Balance of NSW, Melbourne, andSydney (excludes Northern Territory and Australian Capital Territory due to small numbers).Figure 1b plots regions that are ranked from lowest to highest mean house value as follows:Scotland, North East, Northern Island, Wales, Yorkshire + Humberside, North West, WestMidlands, East Midlands, Greater Manchester, East Anglia, South West, Rest of the SouthEast, and London. See appendix 1 in Parkinson et al. (2008) for amounts borrowed in eachlocation.
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Table 4. Loan to value ratios: all home owners (Australia)
Equity savers Equity borrowers
Mean house Mean Mean house Meann value $ debt $ LTV % n value $ debt $ LTV %
1LTV ratio is measured as mean debt divided by mean house values and estimated from a balancedpanel of homeowners (including outright owners). The balanced sample is income units who werenon-moving homeowners without second properties in each and every wave 2002–2005. Homeown-ers with missing debt and home values in any wave are also omitted from the final balanced sample.2Excludes homeowners that had no outstanding mortgage debt in one or more waves. This exclusionencompasses owner occupiers that achieve outright ownership status during the data collection pe-riod, despite equity borrowing, and those who are outright owners at the start of the data collectionperiod but subsequently secure debt against the principal residence.
Second, the style of mortgage borrowing that lies behind these figures – to theextent that it is driven by collateral values rather than savings and income – tends toadd to the risk profile of equity borrowers. Tables 4 and 5 show this by comparing theevolving repayment and credit risk of equity borrowers with that of equity savers.9
Table 5. Loan to value ratios: all homeowners (UK)1
Equity savers Equity borrowers
Mean house Mean Mean house Meann value £ debt £ LTV % n value £ debt £ LTV %
The data here refer to a balanced panel (a sample that does not change from year toyear) comprising equity savers, who are defined as borrowers whose debt is eitherunchanged or lower in every year, and equity borrowers comprising all those whoseoutstanding mortgage debt increased in at least one year between 2002 and 2005.10
Because missing values for debt occur quite frequently, the panel of equity borrowersand savers is less than the numbers of borrowers and savers in Table 1. Outrightowners are included as equity savers in these tables (as in Table 1) except where theirexclusion is noted. The tables show three things of note.
First, the equity savers appear to have very small outstanding loans (absolutelyand in relation to home values) which are declining substantially over time and arevery close to being paid off. This is true for both countries, although the loan-to-value ratios are smallest in Australia. These figures are, nevertheless, skewed by theinclusion of outright owners. Once they are omitted, it is interesting that there are veryfew mortgagors who are net equity savers. That is, the majority of equity savers areoutright owners not mortgagors paying off their loan in the traditional way. But whilethe mean outstanding debt of those equity savers who do have an outstanding loan isnot trivial, it declines markedly across the four-year period, especially in Australia.
Second, equity borrowers on the whole carry more debt than equity savers, andhave higher loan-to-value ratios, despite their higher (in Australia) mean estimatedhome prices. Arguably it is possible to identify two kinds of equity borrower fromthese tables. First, somewhat less than a third of equity borrowers follow an episodeof borrowing with an injection of funds that effectively clears their loan. These maybe thought of as ‘last-time borrowers’ (who may be borrowing to ‘bring forward’a pension lump sum, for example). A second group can be identified by removingthese from the sample, leaving a larger group whose borrowings are higher. It is thisgroup which is driving the steep increase in mean outstanding mortgage debt acrossthe study period.
Finally, the divergence in mean debt among the borrowers and savers in the sam-ple of mortgagors (i.e. excluding outright owners) is very striking indeed. This isparticularly evident among Australian mortgagors where the mean debt of borrowers($149,222) is more than double that of savers ($66,707) by the end of the referenceperiod (see Table 5). The discrepancy is smaller in the UK, and this may reflecta number of factors, not least the possibility that equity savers are earlier in theirrepayment cycle than their Australian counterparts (so that a higher proportion oftheir monthly housing outlays are mortgage interest rather than capital reductions).However, this explanation is unlikely as UK equity savers are typically 59 years ofage, four years older than their Australian counterparts, although we cannot discountthe possibility that they became first homeowners later in their housing careers.
All this suggests that equity borrowers are disproportionately exposed to priceand liquidity risks as the market slows. The extent to which this may impact on thefinancial wellbeing of households is indicated in Table 6, which presents debt toincome ratios – a measure of debt burden and repayment risk commonly used by
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Table 6. Incomes and mortgage debt: all homeowners1
Equity savers Equity borrowers
n Gross income2 Debt ratio n Gross income Debt ratio
1Equity borrowers have increased their mortgage debt in one or more waves. Equity savers havereduced their mortgage debt in every wave. The debt ratio is measured as mean debt divided by meangross household equivalent income and estimated from a balanced panel of homeowners (includingoutright owners). The balanced sample is income units who were non-moving homeowners withoutsecond properties in each and every wave 2002–2005. Homeowners with missing debt and grosshousehold equivalent income in any wave are also omitted from the final balanced sample.2Equivalent income is calculated by dividing household income by the square root of householdsize. The sample differs from Table 5 because there are a greater number of missing values forhouse value compared with income for Australia and in the UK there is a greater number of missingvalues for income compared with house value.
financial institutions. Table 6 again compares equity borrowers and savers using abalanced panel that includes outright owners. The debt-to-income ratios of equityborrowers are – at between 2 and 2.5 – much higher than among equity savers whosedebt burdens are typically less than one-half their gross income. It is striking thatAustralian equity borrowers became more indebted relative to incomes across thefive-year reference period while UK equity borrowers seem more restrained, withdeclining debt-to-income ratios. However, part of the explanation rests with a fasterpace of income growth among UK equity borrowers (30 per cent) as compared withAustralian equity borrowers (15 per cent).
When outright owners are excluded from the analysis (see Table 7), stark differ-ences in the risk profiles of the two groups of mortgagors are apparent. In 2002 equityborrowers and equity savers were almost equally indebted. But over the followingthree years Australian borrowers’ debt ratios climbed to nearly 3, while that of saversdeclined to less than 1.5. This is despite the typically higher incomes among borrow-ers. In the UK the debt ratios of borrowers and savers both fell in the study period,but the savers’ decline was steeper and the reduction larger overall. It is striking,nevertheless, that in both these tables, UK equity borrowers’ mortgage debt burden
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Table 7. Income and mortgage debt: mortgagors1
Equity savers Equity borrowers
n Gross income Debt ratio n Gross income A$ Debt ratio
1 The sample design is the same as table 6 except that all outright owners have been excluded.
has fallen over time while that of their Australian counterparts has increased. Thismay reflect the high price of housing in Australia relative to incomes,11 together withthe extent to which these high home values encourage borrowing through a collateraleffect. It is unlikely to reflect a difference in the age profile of mortgagors (the meanage of equity borrowers in Australia is 43 years and in the UK it is 41 years). It could,on the other hand, indicate that Australian borrowers tend to roll more of their debtsinto mortgages than their UK counterparts. Certainly the fact that UK home buyersdo not hold all their loans as mortgages and have relatively high levels of unsecureddebt (Bridges et al., 2006), suggests there is limited scope for complacency.
In sum, this part of the analysis has shown that, contrary to popular wisdom, equityborrowing is widespread among owner-occupiers, the sums involved are not trivialand one consequence is to enhance both the investment (price and liquidity) andcredit (repayment) risks for equity borrowers relative to the rest.
Mortgage Borrowing Across the Life Course: Generation Effects
In light of the newfound fungibility of housing wealth, it is worth revisiting the life-cycle approach to consumption (Ando & Modigliani, 1963). This theory is popularamong economists as a means of accounting for the way households manage theirwealth across the life course. It postulates that households anticipate substantial fallsin income during retirement. They therefore accumulate stores of value in assetsduring their working lives that are then realised to help finance retirement. Thepresumptions of this theory have, hitherto, been confounded by the behaviour ofhome-owners, who do generally store up housing wealth while earning, but who
Family typeCouple family without children 1,023 12.9 1,180 12.1Couple family with dependant children 2,692 34.2 2,397 32.9Couple family with independent children 203 15.3 377 16.2Lone parent with dependant children 192 31.3 199 31.5Lone parent with independent children 43 12.7 77 14.0Single person 334 10.1 340 8.4Other hh 19 20.9 35 12.3Total 4,506 21.0 4,605 18.5
1Percentages represent the proportion of all episodes in which homeowners of differentage and family types equity borrow. Age and family groups with percentages above21 per cent of Australia and 18.5 per cent for the UK indicate an increased likelihood inborrowing whilst percentages below these amounts reveal a decreased likelihood.
do not spend it in older age (Cappozza & Megbolugbe, 1994), although they dosecure low housing costs in retirement in return for higher outlays as employedmortgagors. The explanation for this is often attributed to a ‘bequest’ motive, bywhich accumulated housing wealth is passed on to the next generation as inheritance.Empirically, however, the evidence for this is mixed (Hurd, 1990).
The panel data, gathered at a time when changes in the lending environmenthave made housing wealth more fungible and potentially available at more or lessany stage in the life-cycle, might be expected to contain rather different behaviourpatterns. What is intriguing is that while there are indeed some shifts, they still donot produce a pattern consistent with the life-cycle model. For example, whereas inany one year about 10 per cent of 55 to 64-year-old homeowners in both countrieswere equity borrowers, the figure rises to around one-third among the under 45s(see Table 8). Moreover, taking out the very youngest cohort of home buyers, theinclination to engage in equity borrowing increases with youth not age. To be sure, atraditional life-cycle effect may kick in among older owners through trading down,and equity release (through reverse mortgages). These would not be apparent in thecurrent analysis, although Turner and Yang (2006) argue that such practices have
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helped fund a wave of early retirements in some European economies. Nevertheless,the age-effect is very striking in the panel data, clearly indicating that mortgageborrowing is bringing spend from housing wealth forward, not to the retirement orpre-retirement years, but rather to fund spending needs much earlier in the life-cycle.
There are various possible explanations for this. Changing attitudes to housingwealth must be a consideration. Studies in the UK, for example, show that a growingproportion of home-owners in all the older age cohorts (aged from 45 to 80) nowexpect to access some of the equity in their homes before they die. Furthermore,those in their 40s and 50s are much more likely to hold this view than those who havealready retired (e.g. Smith, 2004; Rowlingson and McKay, 2005). This is consistentwith Henley and Disney’s (2005) ESRC-funded research which, by analysing theBHPS, showed that people under 40 in 1993 spent a larger proportion of the wealththey accumulated through housing between 1993 and 1999 than did those who were55 and over. It seems that most middle-aged and younger households do not anticipatepassing the entirety of their housing wealth to their heirs. They are planning to spend(some of it) before that time comes.
There is also undoubtedly a life-path/household formation element: this is evidentin Table 8 and Figure 2 which show that, in conjunction with an age-effect, thepresence of children is strongly associated with equity borrowing. In fact the propen-sity for Australian couples with dependent children to borrow from home equityis more than two and half times higher than that among couples without children.Lone parents with dependent children are also twice as likely to borrow compared
Figure 2. Equity borrowing and age of children.
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with single-person households. An almost identical pattern is observed for the UK.Figure 2 shows, further, that in any one year a declining percentage of families addto their mortgages as their children age. Equity borrowing is particularly high amonghomeowners with children under four, for example. In both countries, over one-thirdof these homeowners add to their mortgages in any given year, suggesting that eq-uity borrowing is being used to smooth income fluctuations over a period when onepartner has reduced rates of participation in the labour market. Even where childrenare aged 15–25 years one in four home-owners turns to equity borrowing, confirm-ing that having dependent children and drawing from housing wealth tend to gotogether.
All this adds up to a rather different way of accounting for equity withdrawalbehaviours in the early 21st century than that implied in the life-cycle model. Trends inequity borrowing are, in practice, more consistent with the use of housing wealth as astore of precautionary savings as set out by Skinner (1996). This precautionary savingsmodel presumes that housing wealth is accumulated as a form of self-insurance. Thatis, it is held as a contingency and used when necessary as a buffer against unanticipatedloss of income or increased expenditure. Skinner’s view is that in periods of rapidhouse price inflation – times that produce a housing windfall – any excess overand above the amount ‘set aside’ for precautionary reasons, would be used to fundconsumption. Our conclusions are, as will be apparent later, slightly different; but thefindings are in line with this general approach.
Bonanza?
In the hey-day of house price appreciation, representations of equity borrowing, evenin the respectable press, generally draw attention to the lifestyle options and luxurygoods purchased on the back of housing wealth. Even the model of equity borrowingthat we prefer – based on Skinner’s precautionary savings thesis – presumes thathouse price appreciation eventually spills into non-essential styles of consumption.The same notion is embedded in the response categories of the major surveys: thesecapture spend on, for example, cars and consumer goods, together with a catch-all‘other’ which tends to be rather large. Reflecting this ‘high days and holidays’ modelof equity borrowing, the feeling among analysts as credit restrictions began to bite,is that this is an overdue brake on a culture of consumption that is rather too keen onthe maxim of ‘eat, drink and be merry’. In this final section of the paper, however, wechallenge the notion that, even at the height of macro-economic prosperity, peoplewere exploiting their housing ‘windfall’ by spending from housing wealth primarilyto fund non-essentials. On the contrary, the Australian and UK panel data suggestthat equity borrowing is often associated with transitions and events that increasefinancial pressures, or which prompt the use of housing wealth to protect the welfareof families.
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Table 9. Equity borrowing: marital status
Equity borrowing
Australia UK
Marital status n %1 n %
Legally married 3,496 22.1 3,340 19.3De facto 438 31.2 632 29.5Separated 146 27.8 85 27.7Divorced 199 18.0 250 20.1Widowed 49 3.0 43 1.8Never married and not de facto 178 18.2 255 17.1Total 4,506 21.0 4,605 18.5
1The percentages represent the proportion of all episodes in which equityborrowing occurred. Percentages above 21 per cent in Australia and 18.5per cent for the UK indicate an increased likelihood of borrowing whilstpercentages below these amounts reveal a decreased likelihood.
To an extent this is apparent from the relationship between household type andequity borrowing set out in Table 9. For example, there is no straightforward sense inwhich couples (who can pool their housing costs) are more likely to become equityborrowers than singles; and among singles, those who are separated are much morelikely to have engaged in equity borrowing than those who are widowed, divorcedor never married. There is an indication here that those whose financial needs aremost pressing (least insured or insurable) are most likely to become equity borrowers.This is reinforced by the data for couples, which indicate that while married personsequity borrow in around one in five episodes (about average), those in de factopartnerships are as much as 10 per cent more likely to do so. This difference islarge and hard to account for unless it reflects a reluctance to save collectively(in a setting where there is little protection in the event of death of a partner ordissolution of the partnership), or unless it marks a freeing up of cash in anticipation ofa split.
Figure 3 builds on these ideas, providing a snapshot of which, among a wide rangeof life events documented in the longitudinal surveys, seem most and least likely toprecipitate an episode of equity borrowing. In another paper, we are modelling theeffects of these and other variables, controlling statistically for confounding factorsand casting some of these relationships in a slightly different light (Parkinson et al.,2009). For the purposes of our argument here, however, it is enough to highlight thefactors which most obviously add to, or detract from, the likelihood of borrowingfrom housing wealth.
There are three main observations to draw from this figure. First, the early stages ofhousehold formation, particularly the occasion of marriage, pregnancy and childrenare all life course events that are strongly associated with equity borrowing. The early
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Figure 3. Equity borrowing, biographical disruptions and financial shocks.Australian figures span 2002–2005, whilst UK events were only available for 2001 and 2004.It is not possible to identify promotion in the UK data.
life of dependent children (as noted previously) is an especially influential prompt toequity borrowing. But this is the beginning not the end of the story.
Second, there is, paradoxically, an enhanced likelihood of equity borrowing bothwhen financial circumstances are improving (e.g. through promotion), and also whenthey deteriorate (e.g. through redundancy). There are, for example, minimal dif-ferences between employed and unemployed home-owners: they are more or lessequally likely to become equity borrowers – the former because they can servicethe loan, the latter, perhaps, because housing wealth is a sole or preferred incomesmoothing option. Changing job is also important; this may reflect either an increaseor a decrease in income. All this suggests that it is reasonable to speculate that thereare two groups of people with pressing spending needs that can be met through equityborrowing. One group is formed from those in the early stages of household forma-tion, who have at least one partner employed, and who borrow against home equityto meet pressing financial obligations associated, for example, with children. Theother group is formed from those whose financial circumstances are seriously deteri-orating either through household dissolution or through redundancy/unemployment.These events typically cause additional spending or loss of economies of scale andspecialisation benefits that can worsen financial circumstances (Lehrer, 2003; Lup-ton & Smith, 2003). This group may become equity borrowers as a last – perhapsrisky – resort.
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Third, these findings are consistent with those reported by Benito (2007) whoseanalysis of the BHPS takes a different starting point to ours (using a smaller setof responses around a specific question on additional borrowings), but neverthelesssuggests that patterns of equity withdrawal in the BHPS are consistent with hous-ing wealth being used as a buffer against adverse financial shocks and life events.However, given the suggestion that equity borrowing might draw on housing wealththat has been accumulated as a form of precautionary savings, it is intriguing thatseveral adverse life events do not appear to trigger this action. For example, neitherill-heath, injury nor death of a spouse is associated with above-average levels ofequity borrowing. Likewise, widowhood is less of a trigger than divorce; and boththese are less important than separation. What is interesting here is that all of thesenon-trigger events can be – and routinely are in law – ‘insured’ against by means otherthan housing wealth. These events are typically accompanied by a loss of incomethat can be cushioned by public insurance (social security) programmes and privateinsurance arrangements. This is in marked contrast to pregnancy, to the needs ofpre-school children, and to some economic shocks that might have prompted deteri-oration in households’ financial wellbeing. Government social security programmestypically offer limited assistance in these events, and few cost-effective private insur-ance markets exist either. This is all consistent with a model of equity borrowing inwhich adverse, uninsurable life events trigger people to dip into their ‘precautionarysavings’.
Whether equity borrowing improves matters or not is the subject of a futurepaper. Here we simply note that reported levels of wellbeing are typically loweramong equity borrowers. For instance, using a satisfaction with financial situation(income) measure for Australia (UK) we find that in 2002 average wellbeing scoresof equity savers is 6.7 (7.0) compared with a mean score for equity borrowers of6.0 (6.5).12 These comparisons contribute to our argument that people are as likelyto spend from housing wealth to meet welfare needs as they are to indulge theirhedonism.
Conclusion
The analysis presented in this paper challenges three common assumptions aboutthe role and relevance of mortgage equity withdrawal in two of the major ‘home-ownership’ societies: Australia and the UK. Using comparable segments of twonational longitudinal surveys for the early years of the 21st century, we show, first,that equity borrowing is a common tactic among home-buying households. Thepropensity to engage in MEW across a five-year period is high, and the sums involvedare not trivial. It is possible that the longitudinal surveys under-estimate the frequencyof this type of financial behaviour, since the shortest accounting period is a year.What is clear, however, is that between a third and two-fifths of home-owners have,across a five-year period, experienced at least one year in which net mortgage equity
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withdrawals exceed equity injections by a substantial margin. This indicates thatequity borrowing is both widespread and ‘lumpy’: it is not just about using housingwealth as routinely as an ATM; rather housing wealth is funding some substantial‘one-off’ or sustained expenditures.
Second, we consider what this means for the way households budget for welfareacross the life-course. In particular, we consider whether the way people use newoptions for equity borrowing is consistent with that most fundamental of economicexplanations for the pattern of savings and consumption: the life-cycle hypothesis.In the past this model has not offered a credible explanation for the way housingwealth is managed. Hitherto older home-owners have not spent substantially fromtheir housing wealth as the model predicts: they have left it instead as a bequestfor inheritance. Logically, however, the growing possibility to engage in a variety ofstyles of housing and mortgage equity withdrawal should make the predictions of thismodel more relevant and accurate. Reverse mortgages in particular give home-ownersthe option to store up housing wealth into older age, enjoy the cheap housing servicesthat this ‘income smoothing’ strategy yields, and draw from housing wealth to fundhealth and social care as well as to maintain lifestyle expectations. So it might beexpected that people would not only store up housing wealth into older age, but goon to spend it before they die. Ironically, the equity borrowing behaviours reportedin this paper suggest that home buyers are not (just) using equity borrowing to fundolder age. On the contrary they are using it to draw from housing wealth much earlierin the life-cycle. Because of this we have suggested that housing wealth might mostplausibly be viewed through the lens of a ‘precautionary savings’ model of wealthmanagement as set out by Skinner (1996).
This is underlined, but also qualified, by the third substantial finding in this pa-per, which suggests that during the biggest housing bubble in history – which alsocoincides with a period of welfare retrenchment – it is the insurance rather thanwider consumption role for housing wealth that is most marked. The analysis showsthat while housing wealth may be a spur to all kinds of consumption, people aremost likely to draw down substantial sums to meet pressing expenditures around carefor children, the management of uninsurable financial shocks (such as relationshipbreakdown) and the challenge of income smoothing associated with job loss. It isnot, it appears, the exuberance of rising prices and a strong economy that underpinshome equity borrowing; such behaviours are more associated with financial difficul-ties, biographical disruptions and uninsurable spending needs. Furthermore, there isevidence, which is especially notable for Australia, that borrowers are more preparednow than they were in the past, to take on the added price and liquidity (as well ascredit) risks that equity borrowing implies. As the populations of these two countriescontinue to age, it is perhaps timely for policy makers to consider the implications.We face the prospect of increasing numbers of homeowners approaching retirementwith elevated levels of mortgage debt that are to be repaid from retirement incomes,or equity downsizing. If the market for the latter functions poorly, as Disney (2009)
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has suggested, the welfare of future retirees may be seriously compromised by equityborrowing earlier in housing careers.
The patterns of mortgage equity withdrawal reported in this paper were formedagainst a background of rising house prices, relaxed credit constraints and relativelycheap borrowing. It may also be a setting in which homeowners assumed that priceswould continue to rise to replenish the wealth that equity borrowing eroded. However,the new evidence we have presented indicates that even in a buoyant environment, thecontinuing inclination to use owned homes as collateral for other styles of spending,is risky for equity borrowers. It increases their vulnerability to credit risks (comparedto equity savers), it exposes them to house price and liquidity risk, and as homebuyers come to depend on the fungibility of their housing wealth to fund quite basicneeds, it exposes them to welfare risks too, as described in Smith et al. (2009). It iswell known that mortgage equity withdrawal, like house prices, is cyclical, and thatthe two trends are linked. As prices fall, there is less scope for home buyers to benefitfrom ‘collateral effects’, and as credit constraints are re-introduced, the options forequity borrowing are likely to be dramatically reduced. Furthermore, the likelihoodof being able to replenish housing wealth sufficiently to, for example, fund earlyretirement in the way Turner and Yang (2006) suggests is at best questionable. Sothe ‘credit crunch’ is not just precipitating a crisis in the banking community, and ashock to the macro-economy; it may – by reducing the availability of a key channelfrom housing wealth into consumption at a time when governments have positionedhousing wealth as an asset base for living – prompt a crisis of welfare too.
Acknowledgement and Disclaimer
The research for this paper was funded under the international collaboration schemeof the Australian Research Council (LX 0775767) and the UK’s Economic and So-cial Research Council (RES-000-22-1985). The paper uses unit record data fromthe Household, Income and Labour Dynamics in Australia (HILDA) Survey and theBritish Household Panel Survey (BHPS). The HILDA Project was initiated and isfunded by the Australian Government Department of Families, Housing, CommunityServices and Indigenous Affairs (FaHCSIA) and is managed by the Melbourne Insti-tute of Applied and Economic and Social Research (MIAESR). The BHPS is madeavailable through the Economic and Social Research Council (ESRC) Data Archive.The data were originally collected by the ESRC Research Centre on Micro-SocialChange at the University of Essex. The findings and views reported in this paperare those of the authors and should not be attributed to FaHCSIA, MIAESR or theUniversity of Essex.
Notes
1. Waves to 2005 are included in this analysis: wave 6 (HILDA) and 16 (BHPS) had not been releasedwhen the empirical work was completed.
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2. This excludes 14–15 per cent of Australian homeowners in each wave; and 9–11 per cent in the UK.3. If an outright owner secures a new loan against his or her home, he or she is defined as an equity
borrower in the year he or she takes out the loan. Outstanding debt (and house value) is self-reportedand some measurement error can be anticipated. However, errors can ‘cancel out’ in aggregate, aphenomena that has been documented for self-reported house values (see Robins & West, 1977).
4. British home-owners with missing debt values in 2002 have slightly lower incomes than their counter-parts with reported debt values. They are also more likely to be living in a couple relationship and tohave children; in 2002 their average age was 46 years, which is six years younger than those reportingdebt. These differences are, with the exception of income, statistically significant (p < 0.001).
5. Note that the 8,969 (11,338) episode figures in Australia (Britain) are net measures that include theaddition of episodes due to household formation as dependents leave the parental home and becomehomeowners, and renters make the transition into homeownership.
6. An earlier version of this paper, which includes the tables of data on which these and other figures arebased, is available as Parkinson et al. (2008).
7. The association between median house prices and equity borrowing is less strong (ρ = 0.66; p < 0.01Aus) and (ρ = 0.35; p < 0.01 UK).
8. For example, in Australia (UK), the standard deviation of mean house values is $103,048 (£51,996)but that of mean household incomes is only $5,658 (£2,243).
9. Standard errors are not provided in these tables: the sample design is too complex for them tobe meaningful, the differences are large, and the counts are so high that most differences will bestatistically significant for this reason alone.
10. The tables do not reflect a year-by-year analysis (in which the outstanding debt of equity borrowersin that year is compared with those that are equity savers in that same year) because this would losesight of individual households (which may be savers in one year and borrowers in the next). A furthercomplication is that missing values on debt in one or more years would mean a changing compositionof equity savers and borrowers.
11. Using the person period data set the median house value is 7.8 times Australian homeowners mediangross equivalent income, and the comparable UK multiple is 6.9.
12. Satisfaction with financial situation (income) is measured on a scale of 1 (no satisfaction) to 10(completely satisfied).
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