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Consumption effects of mortgage payment

Author

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  • Albuquerque, Bruno

    (International Monetary Fund)

  • Varadi, Alexandra

    (Bank of England)

Abstract

We use UK transaction-level data during the Covid-19 pandemic to study whether mortgage payment holidays (PH) can act as a mechanism for smoothing household consumption following negative aggregate shocks. Our results suggest that mortgage PH were accessed by both households with pre-existing financial vulnerabilities and by those with stronger balance sheets, including buy-to-let investors. We also find that the temporary liquidity relief provided by PH allowed liquidity-constrained households to maintain higher annual consumption growth compared to those non-eligible for the policy. Finally, we find that mortgage PH led to higher saving rates for more financially-stable households.

Suggested Citation

  • Albuquerque, Bruno & Varadi, Alexandra, 2022. "Consumption effects of mortgage payment," Bank of England working papers 963, Bank of England.
    • Handle: RePEc:boe:boeewp:0963
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    1. Thomas F Crossley & Paul Fisher & Hamish Low & Peter Levell, 2023. "A year of COVID: the evolution of labour market and financial inequalities through the crisis," Oxford Economic Papers, Oxford University Press, vol. 75(3), pages 589-612.

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    More about this item

    Keywords

    Mortgage payment holidays; household behaviour; consumption; high-frequency data; difference-in-differences; panel data;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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