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Credit crunch hits cash-strapped homeowners
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.
Director of the AHURI-RMIT/NATSEM Research Centre, of the Australian Housing
and Urban Research Institute, Professor Gavin Wood, said: “Often this form of self-
administered welfare payment might be used to support children, smooth over a
fall in income or meet the costs of relationship breakdown.”
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.
So 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
For interviews or comment: Professor Gavin Wood, (03) 9925 9885 or 0434
112 712.
For general media enquiries: RMIT Media and Communications, David Glanz,
(03) 9925 2807 or 0438 547 723.
10 December, 2008
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