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Credit deflation and the reflation cycle to come (part 3)


spunko
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sancho panza
13 hours ago, invalid said:

 

Apologies for being off topic, but as farming and energy was mentioned earlier I thought I would share this video of a 150 Case Steam tractor pulling a large plough. A huge machine that produced 150 horse power, hence the name.

I find it interesting because it better shows just how much work is required for farming. Look at those people working the plough handles and imagine each one doing it with a horse.

Cheap oil is the reason why we not all out in the fields walking behind a horse. Energy really is our modern way of life, everything is built on it. Watching that big tractor plough the soil for growing food really hits home at how its essential for even the oldest and most basic tasks of digging up dirt.

Edit - video starts at the interesting bit.

 

 

I don' t consider thoughts like that off topic.Far from it.This is the Dr Tim thesis to a tea.You think of how expensive food would be if that plough was being pulled by a horse and productivity was 50% of it's current levels(productivity being output over horus worked.)

Dread to think,half the world would likely be starving in short order.Greta and those muppets blockading London don't have a viable alternative to fossil fuels and don't have a viable thesis for how they'd support a 7bn population aside from trotting out some tired lines from the Middle class marxist handbook based on day dreams and spending moeny they don't have.

10 hours ago, Yadda yadda yadda said:

You can still get a five year fixed rate mortgage for 0.94%, from HSBC. Plenty of others just under 1%. According to the search on moneysavingexpert.

Wonder when they will creep up?

I think the issue is more nuanced as in how many people are able to access those deals.

On the property thread there's been an interesting discussion regarding the amount of houses SSTC being at record levels suggesting some problems in mortgage flows.Take Leicester-Lot of bidders but clearly people struggling to get mortgages.Even allowing for some of these completing and not being taken off,there still appears to be huge regional differences.

LE2=375 for sale

LE2 incl SSTC=926 for sale

Try Dudley

DY5 =85 for sale

DY5 incl SSTC=336 for sale

At the other end of the scale is SW8.WHere it appears that noones bidding

SW8= 820 for sale

SW8 incl SSTC=970 for sale

 

 

Draw your own conclusions but something's going on.

 

3 hours ago, jamtomorrow said:

Probably not news to anyone here, but I got to thinking about the China coal shortage this morning - specifically: why *now*? Answer: I hadn't clocked that Xi cut China off from Australian coal earlier in the year.

Taken with the recent AUSUK shenanigans, it does make you wonder whose interests are best served by the Aus-China coal stoppage. I suspect the answer is everyone thinks "ours", which means this will get worse - probably much worse - before it gets better.

The West because of the unfolding squeeze it puts on China's energy security. Xi because it feeds into the China-as-victim-of-West narrative. I'd be surprised if Xi lifts the ban "overtly".

https://www.smh.com.au/business/markets/china-may-be-forced-to-lift-australia-coal-ban-as-power-crisis-worsens-20210928-p58vkf.html

China may be forced to lift Australia coal ban as power crisis worsens

China’s power crisis looks set to spur it to import more coal from a wider range of producers, putting it into competition with European and Indian buyers that are also snapping up more of the dirtiest fossil fuel.

More than two-thirds of China’s electricity comes from coal-fired plants and, while more than 90 per cent of the fuel it uses is mined locally, it’s difficult to raise local output at short notice. Looking offshore is the easier option, but that’s been complicated somewhat by Beijing’s decision to ban imports from Australia - the world’s second-biggest exporter - late last year.

It isn’t easy to ramp up local coal supply, given the low investment in new mines in recent years, Bloomberg Intelligence analyst Michelle Leung said in a note. Over-mining is also strongly prohibited amid safety concerns, she said.

Instead, China is likely to try and increase purchases from traditional sources. Jilin province will seek more coal from Indonesia, Russia and Mongolia to ensure power supply and heating, Governor Han Jun said in a statement.

Asia’s largest economy could also look farther afield to coal exporters like South Africa, Colombia, the US and Canada, putting it into competition with buyers in other parts of the world and adding more impetus to global price rallies. European electricity producers are snapping up coal as a shortage of natural gas forces utilities to burn it to cope with their own power crunch, while India is also running low on inventories of the fuel.

 

“Given the coal shortage in the country, we can expect China to ramp up its buying activity and most of it is likely to come from south-east Asian markets due to proximity,” said Abhinav Gupta, a dry cargo research analyst at Braemar ACM Shipbroking. “Most of these coal producers are at peak capacity, which may tighten the coal market and push up prices.”

Beijing could, of course, decide to ease the ban on Australian coal imports, although that may not be politically palatable. BI’s Leung doesn’t think it’s likely, although Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co, reckons it’s a possibility. “Soon the Chinese government might be forced into easing the ban on Australian coal, as that would allow more coal to be imported and ease some pressure on domestic coal prices,” he said.

At least 17 Chinese provinces and regions making up 66 per cent of the country’s gross domestic product have announced some form of power cuts, mostly targeted at heavy industrial users, according to Bloomberg Intelligence. The reasons are two-fold - record high coal prices are causing power generators to trim output despite soaring demand, while some areas have proactively halted electricity flows to meet emissions and energy intensity goals.

China’s energy crisis is shaping up as the latest shock to global supply chains as factories are forced to conserve energy by curbing production. The disruption comes as producers and shippers race to meet demand for everything from clothing to toys for the year-end shopping season, grappling with supply lines that have been upended by soaring raw material costs, long delays at ports and shortages of shipping containers.

China is taking steps to ease an electricity shortage although more policies are needed, state media reported on Tuesday, as the world’s second-largest economy braces for shocks from a worsening supply crunch. The tight supply situation is likely to ease gradually due to measures by authorities to ensure power production and avoid cuts, the official Economic Information Daily said in a front-page report, citing unnamed industry experts

Hard not to see the Chinese going Nuclear in the not too distant.Note to sellf, more Cameco in the BK.

 

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HousePriceMania

Interesting fact I took from one of those petrol station battle articles....there are more HGV drivers employed now tan in 2013, 10,000 more.

 

image.png.f63fcf49255d527f35f4513704bb5269.png

Edited by HousePriceMania
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Bobthebuilder
12 minutes ago, sancho panza said:

Draw your own conclusions but something's going on.

In my search area in Dorset.

83 for sale.

352 inc sstc for sale.

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sancho panza
17 hours ago, Cattle Prod said:

LNG is now trading at $160 a barrel of oil equivalent. Much cheaper to burn oil at current prices. And don't forget, it's much easier to transport to bottlenecks. I don't know what an indicator for this happening would be ..I know the Saudis have facilities to burn raw crude, but perhaps not many have that anymore. Watch for increased diesel refining maybe?

Screenshot_20210928-172603.thumb.png.98e985657a148a4eaf5b73ae7ee1e0cf.png

Just wanted to post some context for consideration.This is my watchlsit for commods performance over 3 years.CWhat's at the bottom chimes in with your bit in bold

I'm putting a St Louis M2 chart for context on context below

image.png.d2a033f882d8dce02ad2cd5f238c71b1.png

What's interesting here is that indexing to 1990,that oil is underperfoming gold,copper but especially M1/2 over 30 years but actually in the run up to 08,oil,copper gold ran ahead of M1/2.........

 

Developing this,we've seen before how each of the last 3 recessions pre covid was preceded by a 100%+ spike in oil,so maybe we should expect to see the BK set up include a period of unsustainably high oil prices.

By that measure $80 isn't unsustainable

image.thumb.png.5fe1172fdb59cfe42068a9f83681a523.png

3 hours ago, planit said:

Conveniently, API oil inventory figures blew the forecasts away last night:

Oil +4.13M (Expectation -2.33M)

Gasoline +3.56M

Distillate +2.48M

All this with gulf oil supply still down.

Hmmmm

Thinking about shorting RDSB this morning.

Maybe they've drawn down the SPR? Which should appear in this chart?

https://ycharts.com/indicators/us_stocks_of_crude_oil

image.thumb.png.b104110c78ab60b9fd581c7ff012507b.png

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1 hour ago, sancho panza said:

On the property thread there's been an interesting discussion regarding the amount of houses SSTC being at record levels suggesting some problems in mortgage flows.Take Leicester-Lot of bidders but clearly people struggling to get mortgages.Even allowing for some of these completing and not being taken off,there still appears to be huge regional differences.

LE2=375 for sale

LE2 incl SSTC=926 for sale

Try Dudley

DY5 =85 for sale

DY5 incl SSTC=336 for sale

At the other end of the scale is SW8.WHere it appears that noones bidding

SW8= 820 for sale

SW8 incl SSTC=970 for sale

 

 

Draw your own conclusions but something's going on.

 

 

There is a dearth of houses for sale in some places, not least here in areas of south Birmingham which accounts for abnormally high SSTC figures compared to , for sale , which I personally put down to people still putting themselves into huge debt and also cash buyers . The big debters because they are worried about losing out......A huge disparity of figures though I know . Even with strict criteria for mortgage hunters .

 

We have just bought SSTC the house directly next door to us , for cash. The seller was a childhood friend . He is no mug but he offered us the house at what I hope is the low end of any price he would have finally achieved , if on the open market .

His brother let slip yesterday that he would have offered it on Rightmove and if no offers after two weeks would have put it up for auction .Who knows , but I feel there is still a bit of frenzy going on for some potential buyers in some areas .

As it is he put it on sale with a local estate agent and told me that he prefers to sell it through a third party here in the UK , as he is now living in Ireland . He finally placed it for sale SSTC straightaway three days after our offer . One reason probably to focus our minds.

I do not house market watch , but going through this purchase , it has struck me how very few houses there are for sale.

Edited by Gin
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Cattle Prod
28 minutes ago, sancho panza said:

Just wanted to post some context for consideration.This is my watchlsit for commods performance over 3 years.CWhat's at the bottom chimes in with your bit in bold

I'm putting a St Louis M2 chart for context on context below

image.png.d2a033f882d8dce02ad2cd5f238c71b1.png

What's interesting here is that indexing to 1990,that oil is underperfoming gold,copper but especially M1/2 over 30 years but actually in the run up to 08,oil,copper gold ran ahead of M1/2.........

 

Developing this,we've seen before how each of the last 3 recessions pre covid was preceded by a 100%+ spike in oil,so maybe we should expect to see the BK set up include a period of unsustainably high oil prices.

By that measure $80 isn't unsustainable

image.thumb.png.5fe1172fdb59cfe42068a9f83681a523.png

Maybe they've drawn down the SPR? Which should appear in this chart?

https://ycharts.com/indicators/us_stocks_of_crude_oil

image.thumb.png.b104110c78ab60b9fd581c7ff012507b.png

$80 is still cheap, as I've been saying! People are screaming about it, because they are so addicted to having it for practically free. The problem is that people have been stuffed with debt to pay for it. Here is an updated inlfation adjusted chart for Brent, so you can see where we are:

image.thumb.png.ce74d2adfd4bcae7a8326b0522849542.png

How did the world afford to pay for oil at an average of ~$130 a barrel inflation adjusted for 5 years, from 2010-2015? Not QE, if that got stuck in the banks. With all this fiscal stimulus, I think there will be plenty of money sloshing around to pay highers prices again, just look at all the idiots filling their tank, they don't care what price it is. So I don't necessarily buy demand destruction (outside of recessions).

API numbers are a survey of producers, and are always wrong. That said, I think it's from increased imports, not SPR, which are announced in advance. Increased imports just means less elsewhere in the world. As we've been saying, the US is going to have to go out and compete for imports again. Luckily for them, they can print the dollars to buy it, unlike China.

Quote

What's interesting here is that indexing to 1990,that oil is underperfoming gold,copper but especially M1/2 over 30 years but actually in the run up to 08,oil,copper gold ran ahead of M1/2.........

That is interesting. Need to think on it. But there was a LOT of oil coming into the market (North Sea ramping up still for example) around 1990, and ample supply till 2002 or so.

Edited by Cattle Prod
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HousePriceMania
1 hour ago, Bobthebuilder said:

In my search area in Dorset.

83 for sale.

352 inc sstc for sale.

Someone pointed this out to me a few weeks ago.  

 

Either:

the agents are so busy they are leaving all their sold properties listed

The want people to have a reference point for these new paradigm crazy high prices so left them listed

Nothing much is actually selling and stuck in chains.

 

Any other explanation ?

 

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sancho panza
3 hours ago, planit said:

Does anyone else use IG for spread betting?

Loads of items I want to trade on are 'close only' (inc most gold miners) and after I made some money the other day on Nat Gas ETF I now cant short it any more.

 

Thinking about other options, does anyone have any recommendations?

Thanks in advance

 

You're probably better off trading options and paying the tax than trading on IG.The problem with spread betting is that 1) stops get triggered by irrational intraday spikes(been there done that),

2) you're responsible for the divi payments so if shorting the FTSE you get reamed on a daily baisis pretty much

and on...........the options they offer are short dated.

 

Put that question to @MvR one of the more informed basement dwellers on such matters.

1 hour ago, Noallegiance said:

Not seen these before. Anyone own? Nearly 10% div with a fuck load of gas and oil infrastructure.

Diversified Energy Company PLC (DEC)

Intersting to see they're main lsiting is London yet all teh assets are in the USA.Bit odd.Definteily one on my watch list,I'll have a deeper dive.

I've coma scored that at Chart 2 Income 1 Bal Sheet 3 FCF 4 Sector 4=14/25.Not great but not bad either, maybe a little cheaper they'll bring it inot buy range.

31 minutes ago, Gin said:

There is a dearth of houses for sale in some places, not least here in areas of south Birmingham which accounts for abnormally high SSTC figures compared to , for sale , which I personally put down to people still putting themselves into huge debt and also cash buyers . The big debters because they are worried about losing out......A huge disparity of figures though I know . Even with strict criteria for mortgage hunters .

Dearth of hosues for sale but also a dearth of hosues completing.London looks like it's really struggling.

LE2 circa 70 per month completing although April/May look dire they could improve due to a lag in registrations.Pre 08 that was a regular 150+ completions per month.Presence of long term BTLers may have influenced that.

Ref LE2 375 for sale,low by any historical standards,normally 600++

So there's an imbalance of houses to complete by historical standards.

LE2 has 4 months inventory for sale.

image.png.14e51ad64a7fc8ba8d68d92767ec1eef.png

More zoomed in

image.png.3920f2e5a184235c7bcb74cd05bc626e.png

 

 

Delving into SW8 the fog gets busier still

We had 820 for sale but bugger all SSTC by comparison at 970.

Completions are awful in that context if you're selling at 22 per month or so over last year.

That's 37 months of inventory to clear.

image.png.9e5cd7bdb2309613165f43edcabdac6b.png

 

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I think Agents need to show houses for sale to try and keep that feeding frenzy, especially if they are SSTC .  If they only have a couple for sale and the same sold then it all looks a bit tired and quiet , that many people will totally relax and think about buying/selling sometime in the future . That isn`t what Estate Agents would like is it.

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38 minutes ago, Noallegiance said:

Wishing I'd bought more Thungela!

I'm watching African Rainbow Minerals, down 30% in last month. Always paid a good divi (ave. 5%), but currently 16%!!

Its another South African miner, but diverse - platinum, iron ore, copper, coal(mostly thermal).  Very low debt, plus many jv's with other major corporates.

But does anyone know why their stock price has fallen? 

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9 minutes ago, HousePriceMania said:

Someone pointed this out to me a few weeks ago.  

 

Either:

the agents are so busy they are leaving all their sold properties listed

The want people to have a reference point for these new paradigm crazy high prices so left them listed

Nothing much is actually selling and stuck in chains.

 

Any other explanation ?

 

Some of the delays in progressing sales are because everything has slowed right down (blamed on covid).......solicitors/HMRC/DVLA/LA searches etc etc.  Anything which needs a government or LA body to deal with it has a mountainous backlog at the moment.  OK you probably don't need the DVLA to buy a house but you get my drift........

The other factor is that EAs leave the SSSCs up for months.  I know this from personal experience some years back when if IIRC my sold house was showing as SSSC for at least 6 months after I'd moved.

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1 hour ago, Noallegiance said:

Wishing I'd bought more Thungela!

Yes it's really motoring at the moment...........I wonder if anyone has told Greta....

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I have a large amount invested in two silver etf's, one is denominated in dollars, the other is in pounds. I bought them couple years back, and intended to sell half (take profit) when the silver price had increased sufficently, and then will leave the remainder in for the rest of the cycle.

I am still waiting to sell 'half' when/if silver goes up, later this year hopefully. But has anyone a view on which to sell? I am thinking of simply ditching the dollar denominated silver etf in order to remove future currency risk.

I wonder, what would others do?

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sancho panza
1 hour ago, HousePriceMania said:

Someone pointed this out to me a few weeks ago.  

 

Either:

the agents are so busy they are leaving all their sold properties listed

The want people to have a reference point for these new paradigm crazy high prices so left them listed

Nothing much is actually selling and stuck in chains.

 

Any other explanation ?

 

Some of these will be EA's slacking trying to look as if they're books busy.But reality is even allowing for that there are clear problems in terms of liquidty in Londinium.You don't have to be a rocket scientist to see that the amount for sale and the amount selling aren't netting off.

I've only looked at SW8 today so other areas might be better but 37 months inventory is a buyer's market by any standards>SW8 might be full of new builds I don't know.

Edit to add:Looks like central Londinium is ripe for the collapse.....

Edit to add 2: Whoever's been lending in central Londinium is likely going to get hosed in teh BK.barclays look the msot exposed using Dowd Buckner ratios leveraged at over 50/1

SE1

1012 for sale,1322 incl SSTC,circa 40 properties a month completing=25 months inventory

image.png.a936bf45134da3de75cf660b0df0097a.png

N1

790 for sale 1248 incl SSTC circa 50 completing per month=15.8 months inventory.

image.png.6c203b2e0dd2d2a6a1d45421341c95c8.png

W2

1114 for sale 1296 incl SSTC circa 32 completing per month= 34 months inventory

image.png.a362c456eebc4d3f49106aa5512f8afa.png

 

Edited by sancho panza
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Noallegiance
7 minutes ago, sancho panza said:

Some of these will be EA's slacking trying to look as if they're books busy.But reality is even allowing for that there are clear problems in terms of liquidty in Londinium.You don't have to be a rocket scientist to see that the amount for sale and the amount selling aren't netting off.

I've only looked at SW8 today so other areas might be better but 37 months inventory is a buyer's market by any standards>SW8 might be full of new builds I don't know.

Edit to add:Looks like central Londinium is ripe for the collapse.....

SE1

1012 for sale,1322 incl SSTC,circa 40 properties a month completing=25 months inventory

image.png.a936bf45134da3de75cf660b0df0097a.png

N1

790 for sale 1248 incl SSTC circa 50 completing per month=15.8 months inventory.

image.png.6c203b2e0dd2d2a6a1d45421341c95c8.png

W2

1114 for sale 1296 incl SSTC circa 32 completing per month= 34 months inventory

image.png.a362c456eebc4d3f49106aa5512f8afa.png

 

What website do you use for these graphs?

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1 hour ago, Cattle Prod said:

 The problem is that people have been stuffed with debt to pay for it. 

So without the debt to pay for it, then surely this means less is bought.

 

2 hours ago, HousePriceMania said:

Interesting fact I took from one of those petrol station battle articles....there are more HGV drivers employed now tan in 2013, 10,000 more.

 

image.png.f63fcf49255d527f35f4513704bb5269.png

2017 was peak dogging.

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sancho panza
1 hour ago, Cattle Prod said:

$80 is still cheap, as I've been saying! People are screaming about it, because they are so addicted to having it for practically free. The problem is that people have been stuffed with debt to pay for it. Here is an updated inlfation adjusted chart for Brent, so you can see where we are:

image.thumb.png.ce74d2adfd4bcae7a8326b0522849542.png

How did the world afford to pay for oil at an average of ~$130 a barrel for 5 years, from 2010-2015? Not QE, if that got stuck in the banks. With all this fiscal stimulus, I think there will be plenty of money sloshing around to pay highers prices again, just look at all the idiots filling their tank, they don't care what price it is. So I don't necessarily buy demand destruction (outside of recessions).

API numbers are a survey of producers, and are always wrong. That said, I think it's from increased imports, not SPR, which are announced in advance. Increased imports just means less elsewhere in the world. As we've been saying, the US is going to have to go out and compete for imports again. Luckily for them, they can print the dollars to buy it, unlike China.

You got me thinking infaltion adjsutment and this chart adds a few historic points.

In real terms(and that's allowing for the deflator being a pretty woeful representation of the cost of lving.

If tehy included the cost of hosuing in the deflator,then the 80 and 08 peaks would be off the scale

Like you say,there's plenty of space for the black stuff to go higher.

https://inflationdata.com/articles/inflation-adjusted-prices/historical-crude-oil-prices-table/

image.png.7310509531686c0909f04963923c7bb8.png

 

 

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sancho panza
6 minutes ago, Hancock said:

So without the debt to pay for it, then surely this means less is bought.

Liquidity is increased ergo the price of essentials bought with cash moves up in general.Price of stuff bought with debt collapses potentially.That's the end game anyway.

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2 minutes ago, sancho panza said:

Liquidity is increased ergo the price of essentials bought with cash moves up in general.Price of stuff bought with debt collapses potentially.That's the end game anyway.

Cash machine debt spenders, will stop spending. (WTF was an 80 year old doing with a mortgage)
https://www.telegraph.co.uk/personal-banking/mortgages/over-55s-turn-homes-cash-machines-property-boom/

Infomercial for lenders.

image.png.d3c666468140703e70874d6f582751c6.png

Older homeowners have cashed in on soaring house prices to withdraw thousands of pounds from the value of their properties.

Falling interest rates for equity release mortgages, coupled with rising house prices, have made it much more cost effective for older people to release funds from their properties. 

Equity release has surged in popularity in recent years among over-55s, who have been keen to unlock the wealth accrued by decades of house price growth. 

The lower cost of a lifetime mortgage, the most common form of equity release, has made switching existing loans much more attractive. Borrowers paid an average interest rate of 3.4pc last year, down from 5.79pc in 2015, according to figures obtained under the Freedom of Information act by mortgage broker Responsible Life. 

The data was released by the Financial Conduct Authority, the City watchdog, which since 2015 has required lenders to report the initial interest rate of every lifetime mortgage sold.

Steve Wilkie, of Responsible Life, said: "It is hugely important that not only have advertised rates dropped, but the real rates customers have been able to secure have been falling too.

"Just because advertised rates fall, these rates are not available to all borrowers because of affordability criteria. It proves progress in the equity release market isn’t just window dressing."

More than 214,000 lifetime mortgages were bought between 2015 and the end of 2020, according to the FCA. The number of lifetime mortgages sold has increased by 74pc over the past five years. 

Although equity release plans are intended to last until the homeowner dies or enters long-term care, the potential of significantly lower interest rates has tempted borrowers to remortgage, even if they must pay hefty exit fees on their original loan.

'I switched my equity release loan and saved thousands'

Patrick Buckingham, 82, said it was a "no-brainer" to switch his lifetime mortgage to a lower rate. He first released £100,000 from his five-bedroom house near Warwick in 2017 to help his two grandchildren onto the property ladder.

"I always planned to use this property as part of my retirement plan and had it in my mind that, if it came down to it, I could sell my house and turn it into cash to live on. 

"In the end I haven’t needed to do that, but the lifetime mortgage has still allowed me to free up some money without having to downsize. I see it as a very logical progression in my financial planning," he said. 

When Mr Buckingham's wife, Ausma, passed away in 2018 it triggered a clause which allowed him to pay off the mortgage early and without penalty. The clause allowed him to do so if either he or his wife died within three years of taking out the loan. 

"I had noticed how equity release interest rates had fallen and didn’t need any prompting to switch.

"I managed to get my rate down from 3.90pc to 2.27pc and I was delighted, it is saving me about £140 a month," he added. 

The number of lifetime mortgages available have doubled in the last two years, according to the Equity Release Council trade body, rising to a record high of 668 in July 2021.

Simon Chalk, of equity release adviser Later Living Now, reported an increase in lifetime mortgage borrowers remortgaging to make the most of cheap interest rates. 

"I recently helped a couple who had taken their first lifetime mortgage 13 years ago to release around £38,000. They were paying a rate of 6.59pc," he said. "They have just switched and were able to release £142,000 and we got the rate down to 4.59pc. That is a huge difference.

"But it's important not to get carried away with the headline rate and to remember remortgaging will also come with additional administration fees, advice charges and legal fees - all of which add to the total debt."

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