The Effect of House Prices on Household Borrowing: A New Approach

James Cloyne, Kilian Huber, Ethan Ilzetzki and Henrik Kleven

No 23861, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate the effect of house prices on household borrowing using administrative mortgage data from the UK and a new empirical approach. The data contain household-level information on house prices and borrowing in a panel of homeowners, who refinance at regular and quasi-exogenous intervals. The data and setting allow us to develop an empirical approach that exploits house price variation coming from idiosyncratic and exogenous timing of refinance events around the Great Recession. We present two main results. First, there is a clear and robust effect of house prices on borrowing, but the responsiveness is smaller than recent US estimates. Second, the effect of house prices on borrowing can be explained largely by collateral effects. We study the collateral channel in two ways: through a multivariate and non-parametric heterogeneity analysis of proxies for collateral and wealth effects, and through a test that exploits interest rate notches that depend on housing collateral.

JEL-codes: D14 E21 E32 E43 E51 G21 (search for similar items in EconPapers)
Date: 2017-09
New Economics Papers: this item is included in nep-ban, nep-eur, nep-mac and nep-ure
Note: EFG ME
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Citations: View citations in EconPapers (15)

Published as James Cloyne & Kilian Huber & Ethan Ilzetzki & Henrik Kleven, 2019. "The Effect of House Prices on Household Borrowing: A New Approach," American Economic Review, vol 109(6), pages 2104-2136.

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Journal Article: The Effect of House Prices on Household Borrowing: A New Approach (2019)
Working Paper: The effect of house prices on household borrowing: a new approach (2019)
Working Paper: The effect of house prices on household borrowing: a new approach (2017)
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