The Bank of England, speaking excellent Greenspanian, voiced fears last month that British homeowners could soon find themselves in a negative equity situation.
"Prospects for house prices are highly uncertain and, after the strength of house price inflation in recent years, the chances of a fall have risen. If that were to happen, housing equity would be reduced and capital gearing raised, increasing household mortgage arrears and thus raising the risk of write-offs."Now today we find out that Brits are in hock to the tune of �1 trillion, and
about 80% of UK personal debt is in the form of loans secured against homes, such as mortgages and re-mortgages.Clearly a fall in housing prices in the UK would cut deeply into consumption since a housing-based wealth effect is driving overall UK growth much as it is in the US. British housing stock is worth about �3 trillion today. If homeowners' average equity value is anywhere close to 33%, things look troubling.