Are Government and Bank Loans Substitutes or Complements? Evidence from Spatial Discontinuity in Equity Loans

Nikodem Szumilo and Enrico Vanino

Real Estate Economics, 2021, vol. 49, issue 3, 968-996

Abstract: This article studies the impact of an increase in the limit of a direct equity loan provided by the U.K. government to finance mortgage deposits on aggregate mortgage lending by banks. It uses the spatial discontinuity methodology and takes advantage of the natural experiment which occurred when the limit of equity loans increased in London after the reform of the Help‐to‐Buy (HTB) scheme. By comparing postcode sectors on the opposite sides of the London boundary, we measure the impact of the new policy on very similar housing markets. The results show that higher equity loans increase aggregate mortgage lending by banks.

Date: 2021
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https://doi.org/10.1111/1540-6229.12261

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