Even if there’s no change in loan-to-value ratios for new lending, rising house prices mean that, as and when people move house, new and higher mortgages replace older, small loans. The counterpart is a largely matching flow into deposits as those trading down the market turn their capital gain into financial assets (Chart 9). Chart 9: Mortgage equity withdrawal got transferred across households, not spent  Chart 10: Mortgage growth determined mainly by prior growth in house prices  Per cent of disposable income 14  Per cent 25  10  20  6  15  2  10  -2 -6 1987  Mortgage equity withdrawal Net flow into household cash and deposits 1992  1997  2002  2007  2012  2017  Sources: Bank of England, ONS, and Bank calculations. Transactions x 15-year house price change / mortgage debt, scaled Growth in mortgage debt  5 0 1991  1996  2001  2006  2011  2016  Sources: HM Revenue and Customs (HMRC) Transactions, ONS, Land Registry, Bank of England, and Bank calculations. The blue line in Chart 10 plots a very crude proxy for this automatic, pre-determined part of mortgage growth. It’s just the change in the average house price over the previous fifteen years (a period designed broadly to match the average tenure of owner-occupiers) multiplied by the number of housing transactions and then divided by the existing stock of mortgage debt. This is a pretty good match for the real thing (the red line).
19 And since such goods and services typically command a price premium in the market, that would in turn lift the value of output, raise national income and secure and expand employment. 15  David Autor and David Dorn, The Growth of Low-Skill Service Jobs and the Polarization of the US Labor Market, American Economic Review, 2013, 103(5): 1553–1597. 16  See the article entitled, “What is behind the recent rebound in euro area employment?”, ECB Economic Bulletin, No. 8 (December 2015). 17  Ulf Lewrickb, Lukas Mohlera and Rolf Weder, When firms and industries matter: understanding the sources of productivity growth, BIS Working Papers No 469 (October 2014). 18  Among several other papers, see e.g. Krizan, C.J., Foster, L. and Haltiwanger, J.C. (2006), “Market selection, Reallocation, and Restructuring in the U.S. Retail Trade Sector in the 1990s”, The Review of Economics and Statistics, MIT Press, Vol. 88(4), pp. 748–758, November. 19  Valerie Jarvis and S.J. Prais, “The Quality of Manufactured Products in Britain and Germany,” International Review of Applied Economics, Vol. 11:3 (1997), 421–438. BIS central bankers’ speeches  5  Indeed, even with the technological advances at our disposal, advanced economies such as the euro area cannot afford to try to out-compete the lower cost producers on price – not if we want to maintain the benefits of our welfare states and less precarious patterns of employment.