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Housing equity as a buffer: evidence from UK households

  • Andrew Benito

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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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
Date of revision:
Handle: RePEc:boe:boeewp:324
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  1. 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.
  2. 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.
  3. Joao Cocco & John Campbell, 2004. "Household Risk Management and Optimal Mortgage Choice," Econometric Society 2004 North American Winter Meetings 632, Econometric Society.
  4. 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.
  5. 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.
  6. James Banks & Richard Blundell & Zoë Oldfield & James P. Smith, 2015. "House Price Volatility and the Housing Ladder," NBER Chapters, in: Insights in the Economics of Aging National Bureau of Economic Research, Inc.
  7. Andrew Benito, 2006. "Does job insecurity affect household consumption?," Oxford Economic Papers, Oxford University Press, vol. 58(1), pages 157-181, January.
  8. John Campbell & Joao Cocco, 2004. "How Do House Prices Affect Consumption? Evidence from Micro Data," 2004 Meeting Papers 357a, Society for Economic Dynamics.
  9. Aoki, Kosuke & Proudman, James & Vlieghe, Gertjan, 2004. "House prices, consumption, and monetary policy: a financial accelerator approach," Journal of Financial Intermediation, Elsevier, vol. 13(4), pages 414-435, October.
  10. 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.
  11. Viola Angelini & Peter Simmons, . "Housing Debt, Employment Risk and Consumption," Discussion Papers 05/07, Department of Economics, University of York.
  12. 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.
  13. Steven F. Venti & David A. Wise, 1987. "Aging, Moving, and Housing Wealth," NBER Working Papers 2324, National Bureau of Economic Research, Inc.
  14. Orazio Attanasio & Laura Blow & Robert Hamilton & Andrew Leicester, 2005. "Consumption, house prices and expectations," Bank of England working papers 271, Bank of England.
  15. Sophia Rabe-Hesketh & Anders Skrondal & Andrew Pickles, 2004. "GLLAMM Manual," U.C. Berkeley Division of Biostatistics Working Paper Series 1160, Berkeley Electronic Press.
  16. 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.
  17. repec:nsr:niesrd:59 is not listed on IDEAS
  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. Raj Chetty & Adam Szeidl, 2004. "Consumption Commitments and Habit Formation," NBER Working Papers 10970, National Bureau of Economic Research, Inc.
  20. Miles, David, 1992. "Housing markets, consumption and financial liberalisation in the major economies," European Economic Review, Elsevier, vol. 36(5), pages 1093-1127, June.
  21. Sebastian Barnes & Gregory Thwaites, 2005. "'Real-world' mortgages, consumption volatility and the low inflation environment," Bank of England working papers 273, Bank of England.
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