Housing consumption and investment:evidence from shared equity mortgages
Matteo Benetton (),
João F Cocco () and
Nicola Garbarino ()
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Matteo Benetton: Haas School of Business
João F Cocco: London Business School
Nicola Garbarino: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
No 790, Bank of England working papers from Bank of England
Academics have proposed hybrid products with equity features for the financing of housing. In spite of their risk-sharing benefits these products have not become mainstream. This paper studies an important exception, a UK government scheme which in the five years since its inception has provided almost £10 billion of equity financing. The analysis of the origination and prepayment behavior of households who have used the scheme highlights housing affordability constraints. A difference-in-difference analysis of an increase in the maximum government equity limit shows that households took advantage of the increase to buy more expensive properties, and not to reduce their mortgage debt and house price risk exposure. A counterfactual study of homebuyers who, instead of using the equity available, relied on high loan-to-value mortgages shows that their financing choices can be rationalized by an expected rate of house price appreciation of 7.7% per year. We draw general implications for how households approach their house purchase and financing decisions, taking advantage of the fact that the shared equity mortgages that we study allow the separation of the consumption and investment dimensions of housing.
Keywords: Housing; consumption; investment; affordability; macro-prudential policy; expectations (search for similar items in EconPapers)
JEL-codes: D14 R21 R31 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0790
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