Housing Consumption and Investment: Evidence from Shared Equity Mortgages

Abstract

We exploit a U.K. government-sponsored product and provide evidence on shared equity mortgages. The analysis shows how the interaction of house price growth and leverage regulation promotes product adoption. Following an increase in the equity limit, households use the additional financing to buy more expensive properties rather than reduce leverage. Equity used as a complement to debt is likely less beneficial for financial stability than when used as a substitute. Equity borrowers are less likely to change lenders when refinancing their senior debt. Finally, we measure the equity provider returns, which are affected by selection and undervaluation at repayment.

Mortgage affordability and entrepreneurship: Evidence from spatial discontinuity in Help-to-Buy equity loans

“…This seems to suggest that the first group could use HTB to limit their housing market risk and start a business. Indeed, this is consistent with reports that HTB borrowers are more likely to default despite being exposed to less housing market risk than comparable borrowers who do not use the scheme (Benetton et al, 2018). Unfortunately, we are unable to add to this literature by directly testing this prediction, as we cannot track either wealth or portfolio composition of entrepreneurs.…”

“…Other studies of the scheme considered its impact on prices of new houses and the number of transactions(Carozzi et al, 2020), as well as characteristics of home buyers(Benetton et al, 2019).…”