Kristina Bluwstein, Michał Brzoza-Brzezina, Paolo Gelain, Marcin Kolasa, 07 December 2020

Transmission of monetary policy depends to a large extent on the phase of the housing cycle. This is because residential property prices are important determinants of banks’ willingness to lend. This column presents analysis for the US which shows that in the mature phase of the housing market boom, or immediately after a bust began, the effects of a monetary expansion were smaller than they were earlier in the housing cycle. This is relevant for central banks which are considering responding to the Covid-19 pandemic by easing monetary policy during a period of relatively high house prices.

Egle Jakucionyte, Swapnil Singh, 09 November 2020

Mortgage markets are dynamic in nature, which sometimes comes at a cost. This column shows that over the last few decades, the US mortgage market experienced a secular decline in co-borrowers. Having a co-borrower minimises the exposure and effects of adverse income shocks and thus should enhance mortgage performance. The authors show that this yet unexplored decline in co-borrowers therefore has non-trivial implications for the financial stability of the mortgage market and regional economic outcomes. 

Nicolas Woloszko, Orsetta Causa, 31 March 2020

Rising house prices are causing a housing affordability crisis in many countries, but at the same time they are increasing homeowners’ wealth. Governments are faced with the challenge to encourage households to build up housing wealth while also fostering access to good-quality affordable housing. This column shows that, across OECD countries, those countries with higher homeownership rates display much lower wealth inequality, but argues that encouraging homeownership will not help low- and middle-income families accumulate wealth and are likely to conflict with other important policy objectives.

Henrik Yde Andersen, Søren Leth-Petersen, 20 December 2019

House prices and aggregate spending move together, but little is known about the underlying mechanism linking the two. This column introduces a test to discriminate between the housing wealth effect hypothesis, which says that homeowners consider home value changes as windfalls, and the collateral effect hypothesis, which says that a home value increase generates additional collateral that can be borrowed against. Homeowner behaviour in response to home value rises when they are close to their collateral borrowing constraint, suggesting that the collateral effect is important for explaining the link between house prices and spending. 

Andreas Fuster, Paul Goldsmith-Pinkham, Tarun Ramadorai, Ansgar Walther, 11 January 2019

The use of machine learning in credit allocation should allow lenders to better extend credit, but the shift from traditional to machine learning lending models may have important distributional effects for consumers. This column studies the effect of machine learning on mortgage lending in the US. It finds that machine learning would offer lower rates to racial groups who already were at an advantage under the traditional model, but it would also benefit disadvantaged groups by enabling them to obtain a mortgage in the first place.

Michael King, Anuj Pratap Singh, 14 December 2018

Financial products with a cashback feature are increasingly popular, but typically cost consumers more in the long run. This column shows that consumers who are younger and less educated, and those affected by present bias and inattention, are more likely to choose more expensive 'cashback mortgages'. Advanced behaviourally informed disclosure improves consumer decision-making. Advertising in the form of a 'negative nudge' or sludge, however, encourages prospective buyers to choose more costly mortgages. 

Stephen Cecchetti, Kim Schoenholtz, 23 October 2018

James Cloyne, Kilian Huber, Ethan Ilzetzki, Henrik Kleven, 31 August 2018

House prices are strongly correlated with borrowing, but little is known about which one is causing the other. The column uses UK house price data between 2005 and 2015, and also exploits unusual features of the UK mortgage market, to show that a 10% rise in house prices led to a 2% rise in the amount of equity extracted. This is mostly because higher house prices could be used as collateral.

David Miles, 23 March 2018

The housing market faces major challenges in both the short and long run in terms of affordability, price variability, ownership structures, financing, and their impacts upon wider macroeconomic stability. This column summarises a conference on lessons for the future of housing, jointly organised by the Brevan Howard Centre for Financial Analysis at Imperial College Business School and CEPR.

Zanna Iscenko, 18 January 2017

In the UK, 90% of household borrowing is mortgages. In this video, Zanna Iscenko discusses her research on behaviour of consumers in the mortgage markets. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

Kristopher S. Gerardi, Kyle Herkenhoff, Lee Ohanian, Paul S. Willen, 10 January 2017

Many studies have addressed the question of why people default on their mortgages, but lack of data has meant that much of this research has omitted the effect of the owner's ability to pay. This column uses panel data on defaults and changes in income to show that ability to pay is a much more important determinant of default than previously recognised. If the head of household loses a job, for example, this is equivalent to the effect of a 35% drop in home equity. Policies targeted at increasing ability to pay may be more effective at reducing default than those that try to remedy negative equity.

Claire Célérier, 05 December 2016

What are the drivers of complexity? In this video Claire Célérier explains the implications of complexity for investors. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

Christopher Woolard, 28 November 2016

Can consumers make effective choices in the mortgage market? In this video, Christopher Woolard discusses key issues for regulators. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

, 25 November 2016

Who would benefit from interventions in the mortgage market? In this video, Steffen Andersen highlights the differences between the UK and Danish markets. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

Tarun Ramadorai, 18 November 2016

Consumers are at the heart of the mortgage market. In this video, Tarun Ramadorai discusses the constraints household might face when taking mortgages. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

Peter Andrews, 14 November 2016

Is the mortgage market working well? In this video, Peter Andrews discusses possible interventions when markets are failing. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

Nancy E. Wallace, 11 November 2016

There have been changes in the way individuals buy or rent houses. Nancy Wallace explains the role of mortgages and how they should be funded. This video was recorded at the Brevan Howard Centre for Financial Analysis in October 2016.

Janine Aron, John Muellbauer, 31 August 2016

Mortgage delinquencies and foreclosures have serious implications, not just for the households affected, but for the financial stability of the economy. The solvency of the mortgage lenders is affected, and their ability to extend credit. This column identifies three key drivers of delinquency and foreclosure rates in the UK – the debt service ratio, the proportion of homes in negative equity, and the unemployment rate – and compares the rates with those in the US. It also discusses the data constraints that have hindered previous analyses.

Sumit Agarwal, Gene Amromin, Souphala Chomsisengphet, Tomasz Piskorski, Amit Seru, Vincent Yao, 01 October 2015

Mortgage refinancing is one of the main ways households can benefit from a decline in the cost of credit. This column uses the US Government’s Home Affordable Refinancing Program (HARP) as a laboratory to examine the government’s ability to impact refinancing activity and spur household consumption. The results suggest that less creditworthy borrowers significantly increase their spending following refinancing. The authors provide comprehensive evidence that competitive frictions in intermediation sector prevented a large number of such eligible borrowers from benefiting from the programme. To the extent that such borrowers have the largest marginal propensity to consume, allowing them to refinance under the programme could increase overall consumption and alleviate uneven economic outcomes across the country.

Charles Goodhart, Philipp Erfurth, 03 November 2014

There has been a long-term downward trend in labour’s share of national income, depressing both demand and inflation, and thus prompting ever more expansionary monetary policies. This column argues that, while understandable in a short-term business cycle context, this has exacerbated longer-term trends, increasing inequality and financial distortions. Perhaps the most fundamental problem has been over-reliance on debt finance. The authors propose policies to raise the share of equity finance in housing markets; such reforms could be extended to other sectors of the economy.


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