Modelling and Forecasting UK Mortgage Arrears and Possessions
AbstractThis paper presents new models for aggregate UK data on mortgage possessions (foreclosures) and mortgage arrears (payment delinquencies). The innovations include the treatment of difficult to observe variations in loan quality and shifts in forbearance policy by lenders, by common latent variables estimated in a system of equations for arrears and possessions, for quarterly data over 1983-2009. A second innovation is the theory-justified use of an estimate of the proportion of mortgages in negative equity, based on an average debt to equity ratio, as one of the key drivers of possessions and arrears. A third is the systematic treatment of measurement bias in the months in arrears measures. Finally, the paper does not impose a proportional long-run relationship between possessions and arrears assumed in the previous UK literature. A range of economic forecast scenarios for forecasts to 2013 reveals the sensitivity of mortgage possessions and arrears to different economic conditions, highlighting potential risks faced by the UK and its mortgage lenders. A comprehensive review of data on arrears and possessions completes the paper.
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Bibliographic InfoPaper provided by Spatial Economics Research Centre, LSE in its series SERC Discussion Papers with number 0052.
Date of creation: Aug 2010
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foreclosures; mortgage possessions; mortgage payment delinquencies; mortgage arrears; UK mortgage market; defaults; unobserved components model;
Other versions of this item:
- Janine Aron & John Muellbauer, 2010. "Modelling and Forecasting UK Mortgage Arrears and Possessions," Economics Series Working Papers 499, University of Oxford, Department of Economics.
- Aron, Janine & Muellbauer, John, 2010. "Modelling and Forecasting UK Mortgage Arrears and Possessions," CEPR Discussion Papers 7986, C.E.P.R. Discussion Papers.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
- R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy
- R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
- E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-20 (All new papers)
- NEP-BAN-2010-11-20 (Banking)
- NEP-FOR-2010-11-20 (Forecasting)
- NEP-URE-2010-11-20 (Urban & Real Estate Economics)
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