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Determinants of distress in the UK owner-occupier and buy-to-let mortgage markets

Vladimir Lazarov () and Marc Hinterschweiger
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Vladimir Lazarov: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 760, Bank of England working papers from Bank of England

Abstract: The mortgage market has played a central role in the global financial crisis. One particularly pressing question surrounds the conditions under which mortgage borrowers enter distress, ie get into arrears or default. This paper develops a novel micro dataset from residential mortgage loans which UK banks and building societies have pre-positioned with the Bank of England for use as collateral in exchange for central bank funding. The dataset is used to investigate the determinants of borrower distress as a function of borrower and loan-level stock/flow characteristics over the loans’ lifetime in the buy-to-let (BTL) and owner-occupier (OO) mortgage markets. We find systematic differences between these two markets, controlling for a range of loan and borrower characteristics as well as macro variables. Our main result shows that, adjusting for affordability, the loan-to-value ratio is reliably more important for borrower distress in the OO market than for distress in the BTL market, contradicting McCann’s (2014) results.

Keywords: Distress; default; arrears; mortgage lending; loan level; micro data; United Kingdom (search for similar items in EconPapers)
JEL-codes: C23 C55 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2018-10-19
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