Tag: Homeownership

Credit constraints and housing market access

Belinda Tracey and Neeltje van Horen

The Help-to-Buy (HTB) programme introduced in 2013 reopened the 95% loan to value (LTV) segment of the UK mortgage market, thereby reducing the minimum deposit requirement for many first-time buyers (FTBs) from 10% to 5% (Chart 1). That policy change offers a useful natural experiment to study how deposit constraints shape access to homeownership. We previously demonstrated that this easing of deposit constraints generated a clear increase in local spending. In a recent paper, we show that lowering this constraint increases FTB home purchases, particularly among households without access to external financial support for their deposit.

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The consumption response to borrowing constraints in the mortgage market

Belinda Tracey and Neeltje van Horen

How is household consumption affected by borrowing constraints in the mortgage market? In a new paper, we answer this question by studying the UK’s Help to Buy (HTB) program over the period 2014–16. The program facilitated home purchases with only a 5% down payment and resulted in a sharp relaxation of the down-payment constraint. We show that HTB boosted household consumption in addition to stimulating housing market activity. Home purchases increased by 11%, and the increase was driven almost entirely by first-time and young buyers. In addition, household consumption grew by 5% more in parts of the UK more exposed to the program. Relaxing the down payment constraint thus has important macroeconomic effects that extend beyond the housing market.

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