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House Price Shocks and Household Indebtedness in the United Kingdom

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  • RICHARD DISNEY
  • SARAH BRIDGES
  • JOHN GATHERGOOD

Abstract

We use household panel data to explore the link between changes in house prices and household indebtedness (both secured on housing assets and unsecured) in the United Kingdom. We show that households which are borrowing-constrained by a lack of housing equity as collateral make greater use of unsecured debt such as credit cards or personal loans. In response to rising house prices, which relax this constraint, such households are more likely to refinance and to increase their indebtedness relative to unconstrained households. However, for most households, house price movements appear to have little impact on indebtedness. Copyright (c) The London School of Economics and Political Science 2009.

Suggested Citation

  • Richard Disney & Sarah Bridges & John Gathergood, 2010. "House Price Shocks and Household Indebtedness in the United Kingdom," Economica, London School of Economics and Political Science, vol. 77(307), pages 472-496, July.
  • Handle: RePEc:bla:econom:v:77:y:2010:i:307:p:472-496
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    Cited by:

    1. Atalay, Kadir & Whelan, Stephen & Yates, Judith, 2013. "Housing Wealth and Household Consumption: New Evidence from Australia and Canada," Working Papers 2013-04, University of Sydney, School of Economics.
    2. Jeremy G. Weber & Nigel Key, 2015. "Leveraging Wealth from Farmland Appreciation: Borrowing, Land Ownership, and Farm Expansion," Land Economics, University of Wisconsin Press, vol. 91(2), pages 344-361.
    3. Callan Windsor & Jarkko Jääskelä & Richard Finlay, 2013. "Home Prices and Household Spending," RBA Research Discussion Papers rdp2013-04, Reserve Bank of Australia.
    4. Gathergood John, 2011. "Racial Disparities in Credit Constraints in the Great Recession: Evidence from the UK," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-32, September.
    5. Mario Fortin, 2015. "Why has the mortgage debt increased by so much in Canada?," Cahiers de recherche 15-03, Departement d'Economique de l'École de gestion à l'Université de Sherbrooke.
    6. Weber, Jeremy G. & Key, Nigel D., 2013. "Does proprietor wealth influence small business decisions? Land appreciation and farm business borrowing, land ownership, and output," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150408, Agricultural and Applied Economics Association.
    7. Viola Angelini & Peter Simmons, "undated". "Housing Debt and Consumption," Discussion Papers 11/20, Department of Economics, University of York.
    8. Dawson, Chris & Henley, Andrew, 2012. "Something will turn up? Financial over-optimism and mortgage arrears," Economics Letters, Elsevier, vol. 117(1), pages 49-52.
    9. William Elming & Andreas Ermler, 2016. "Housing equity, saving and debt dynamics over the Great Recession," IFS Working Papers W16/12, Institute for Fiscal Studies.
    10. Disney Richard & Gathergood John, 2011. "House Price Growth, Collateral Constraints and the Accumulation of Homeowner Debt in the United States," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-30, September.

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