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A Dynamic Analysis of Mortgage Arrears in the UK Housing Market

Catarina Figueira, John Glen and Joseph Nellis
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John Glen: Cranfield University
Joseph Nellis: Cranfield University

Urban/Regional from EconWPA

Abstract: The UK economy has enjoyed an unprecedented period of positive economic growth since the early 1990s. The absence of recession for more than a decade has been accompanied by a sustained decline in the level of mortgage arrears, as reported by major lenders. This paper seeks to examine the factors which have driven the reduction in mortgage arrears and, in doing so, identify those factors which are most likely to cause arrears to increase in the future, should economic conditions deteriorate. The paper employs the Johansen methodology to test for the presence of multiple cointegrating vectors. An error correction model is estimated in order to examine long-run and short-run dynamics in mortgage arrears. In line with previous research concerning the causes of mortgage arrears, the results presented here emphasise the importance of changes in the rate of unemployment, loan–income and debt–service ratios. More importantly, our results highlight the statistical significance of unwithdrawn housing equity as an explanatory variable with respect to mortgage arrears.

Keywords: mortgage arrears; housing market; cointegration (search for similar items in EconPapers)
JEL-codes: C22 R21 R31 (search for similar items in EconPapers)
Date: 2005-09-07
Note: Type of Document - pdf; pages: 16
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpur:0509006

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