Does Mortgage Equity Withdrawal (mew) Exert Positive Pressure on House Prices in the United Kingdom?

During the Noughties in the UK, we have seen a massive explosion in unsecured personal debt mirrored to a lesser extent by an exponential rise in secured debt. Much of the secured debt is attributed to an increase in Mortgage Equity Withdrawal (MEW), that is, borrowing secured on the housing stock but not invested in it. In this paper, the question posed is: Does MEW exert positive pressure on house prices in the UK? This is answered empirically using data from the Council of Mortgage Lenders (CML) over the period 1979-2006 using nearly a million secured loan approvals. CML data takes the form of annual cross sections of approvals, from which a monthly time series dataset has been extracted for use in this research. Our analysis focuses on differentiating between three borrower types: MEW, First time buyers, and Trade up/down borrowers. Applying Grangercausality tests to the time series data, we find that in addition to house prices boosting borrowing, there is feedback: borrowing also boosts house prices. After applying cointegration tests, an Error Correction Model is estimated that explains the endogenous dependency of property prices on MEW.