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Are Government and Bank Loans Substitutes or Complements? Evidence from Spatial Discontinuity in Equity Loans

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  • Nikodem Szumilo
  • Enrico Vanino

Abstract

This article studies the impact of an increase in the limit of a direct equity loan provided by the U.K. government to finance mortgage deposits on aggregate mortgage lending by banks. It uses the spatial discontinuity methodology and takes advantage of the natural experiment which occurred when the limit of equity loans increased in London after the reform of the Help‐to‐Buy (HTB) scheme. By comparing postcode sectors on the opposite sides of the London boundary, we measure the impact of the new policy on very similar housing markets. The results show that higher equity loans increase aggregate mortgage lending by banks.

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  • Nikodem Szumilo & Enrico Vanino, 2021. "Are Government and Bank Loans Substitutes or Complements? Evidence from Spatial Discontinuity in Equity Loans," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(3), pages 968-996, September.
    • Handle: RePEc:bla:reesec:v:49:y:2021:i:3:p:968-996
    DOI: 10.1111/1540-6229.12261
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    Cited by:

    1. Carozzi, Felipe & Hilber, Christian A.L. & Yu, Xiaolun, 2024. "On the economic impacts of mortgage credit expansion policies: Evidence from help to buy," Journal of Urban Economics, Elsevier, vol. 139(C).
    2. Montebruno, Piero & Silva, Olmo & Szumilo, Nikodem, 2021. "Judge Dread: court severity, repossession risk and demand in mortgage and housing markets," LSE Research Online Documents on Economics 114435, London School of Economics and Political Science, LSE Library.

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