The anatomy of a shock to residential real estate: the role of lending

Sidharth Moktan (), Benjamin Guin () and Liam Clarke ()
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Sidharth Moktan: London School of Economics and Political Science
Benjamin Guin: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Liam Clarke: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 1111, Bank of England working papers from Bank of England

Abstract: What is the role of lending in transmitting shocks to residential real estate? We consider this question by examining an adverse and salient shock to a segment of the property market in England and Wales. This shock, arising from a tragic event which resulted in significant loss of life, affected high-rise properties.1 Using comprehensive administrative data on all residential mortgage and property transactions, combined with property‑level rent data, we study responses in these markets. Consistent with the idea of credit being a ‘financial accelerator’, we document a decline in mortgage originations following the shock, with the sharpest contraction observed among first‑time buyers. We also highlight the role of cash buyers and lender size in dampening the overall impact of the shock. Additionally, the paper provides a conceptual framework that integrates multiple administrative data sets to understand how salient shocks, including those related to climate risks, may affect the property market. It offers valuable insights for financial policymakers on how these shocks propagate through credit and housing markets.

Keywords: Residential real estate; mortgage market; collateral shocks (search for similar items in EconPapers)
JEL-codes: D14 G21 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2025-01-17
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