Tag: high-frequency data

When mortgage flexibility meets monetary policy tightening: heterogeneous impacts on spending and debt

Philippe Bracke, Matt Everitt, Martina Fazio and Alexandra Varadi

The Bank of England Agenda for Research (BEAR) sets the key areas for new research at the Bank over the coming years. This post is an example of issues considered under the Macroeconomic Environment Theme which focuses on the changing inflation dynamics and unfolding structural change faced by monetary policy makers.

How do mortgagors adjust spending, savings and debt during monetary tightening? In a recent paper, we explore this question using a novel data set on household transactions and mortgage records. About 30% of households used mortgage flexibility when facing higher borrowing costs since late 2021, as their fixed-rate contracts ended. Some extended repayment periods to lower monthly payments, while others increased borrowing by extracting housing equity – leveraging nominal price gains since the pandemic – to sustain spending and reduce unsecured debt. Those unable or unwilling to use mortgage flexibility, cut spending significantly. We thus document the dual role of mortgage flexibility at refinancing: it helps smooth consumption aiding financial resilience; but it may also dampen monetary policy transmission for some households.

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Consumption effects of mortgage payment holidays during the Covid-19 pandemic

Alexandra Varadi and and Bruno Albuquerque

Mortgage payment holidays (PH) were introduced in March 2020 to help households who might have struggled to keep up with mortgage payments due to the pandemic. It allowed a suspension of mortgage principal and interest repayments for a maximum of six months, without affecting households’ credit risk scores. Given the novelty of the policy, we study in a new paper whether mortgage PH have supported household consumption during the pandemic, especially for those more financially vulnerable. Using transaction-level data, we find that temporary liquidity relief provided by PH allowed liquidity-constrained households to maintain higher annual consumption growth compared to those not eligible for the policy. We also find that PH led more financially stable households to increase their saving rates, not their consumption.

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