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Housing equity as a buffer: evidence from UK households

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  • Andrew Benito

Abstract

The decision to extract home equity is examined using household-level data for the United Kingdom, 1993 to 2003. At its peak during the period, around one in ten homeowners withdrew equity per year. The paper finds that the equity withdrawal decision conforms to predictions from the standard life-cycle framework and models that predict its use as a financial buffer. The paper also estimates responses to the large house price appreciation and significant reductions in mortgage rates seen during the period. This has implications for the size of the ‘collateral channel’ and credit channel models of monetary policy.

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File URL: http://www.bankofengland.co.uk/research/Documents/workingpapers/2007/WP324.pdf
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Bibliographic Info

Paper provided by Bank of England in its series Bank of England working papers with number 324.

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Date of creation: May 2007
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Handle: RePEc:boe:boeewp:324

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  1. John Y. Campbell & Joao F. Cocco, 2003. "Household Risk Management And Optimal Mortgage Choice," The Quarterly Journal of Economics, MIT Press, vol. 118(4), pages 1449-1494, November.
  2. Sophia Rabe-Hesketh & Anders Skrondal & Andrew Pickles, 2004. "GLLAMM Manual," U.C. Berkeley Division of Biostatistics Working Paper Series 1160, Berkeley Electronic Press.
  3. John Y. Campbell & Joao F. Cocco, 2005. "How Do House Prices Affect Consumption? Evidence From Micro Data," Harvard Institute of Economic Research Working Papers 2083, Harvard - Institute of Economic Research.
  4. Christopher D Carroll & Karen E Dynan & Spencer D Krane, 1999. "Unemployment Risk and Precautionary Wealth: Evidence from Households' Balance Sheets," Economics Working Paper Archive 416, The Johns Hopkins University,Department of Economics.
  5. Banks, James & Blundell, Richard & Oldfield, Zoë & Smith, James P., 2010. "House Price Volatility and the Housing Ladder," IZA Discussion Papers 5173, Institute for the Study of Labor (IZA).
  6. Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
  7. James Banks & Richard Blundell & James P. Smith, 2002. "Wealth Portfolios in the UK and the US," NBER Working Papers 9128, National Bureau of Economic Research, Inc.
  8. Viola Angelini & Peter Simmons, . "Housing Debt, Employment Risk and Consumption," Discussion Papers 05/07, Department of Economics, University of York.
  9. Rabe-Hesketh, Sophia & Skrondal, Anders & Pickles, Andrew, 2005. "Maximum likelihood estimation of limited and discrete dependent variable models with nested random effects," Journal of Econometrics, Elsevier, vol. 128(2), pages 301-323, October.
  10. Kosuke Aoki & James Proudman & Gertjan Vlieghe, 2002. "House prices, consumption, and monetary policy: a financial accelerator approach," Bank of England working papers 169, Bank of England.
  11. Andrew Benito & Haroon Mumtaz, 2006. "Consumption excess sensitivity, liquidity constraints and the collateral role of housing," Bank of England working papers 306, Bank of England.
  12. Garcia, R. & Lusardi, A. & Ng, S., 1995. "Excess Sensitivity and Asymmetries in Consumption: an Empirical Investigation," Cahiers de recherche 9511, Universite de Montreal, Departement de sciences economiques.
  13. Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Consumption, house prices and expectations," Bank of England working papers 271, Bank of England.
  14. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
  15. repec:nsr:niesrd:59 is not listed on IDEAS
  16. Sebastian Barnes & Gregory Thwaites, 2005. "'Real-world' mortgages, consumption volatility and the low inflation environment," Bank of England working papers 273, Bank of England.
  17. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
  18. Andrew Benito, 2006. "How does the down-payment constraint affect the UK housing market?," Bank of England working papers 294, Bank of England.
  19. Andrew Benito, 2002. "Does Job Insecurity Affect Household Consumption?," Banco de Espa�a Working Papers 0225, Banco de Espa�a.
  20. Adam Szeidl & Raj Chetty, 2005. "Consumption Commitments: Neoclassical Foundations for Habit Formation," 2005 Meeting Papers 122, Society for Economic Dynamics.
  21. Boheim, Rene & Ermisch, John, 2001. " Partnership Dissolution in the UK--The Role of Economic Circumstances," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(2), pages 197-208, May.
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Citations

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Cited by:
  1. Benito, Andrew & Saleheen, Jumana, 2012. "Labour Supply as a Buffer: Evidence from UK Households," IZA Discussion Papers 6506, Institute for the Study of Labor (IZA).
  2. Márquez, Elena & Martínez-Cañete, Ana R. & Pérez-Soba, Inés, 2013. "Wealth shocks, credit conditions and asymmetric consumption response: Empirical evidence for the UK," Economic Modelling, Elsevier, vol. 33(C), pages 357-366.
  3. Beverley Searle, 2011. "Recession and housing wealth," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 3(1), pages 33-48, February.
  4. M. Deidda, 2013. "Economic hardship, housing cost burden and tenure status: evidence from EU-SILC," Working Paper CRENoS 201323, Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia.

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