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Consumption Effects of Mortgage Payment Holidays: Evidence during the COVID-19 Pandemic

Author

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  • Bruno Albuquerque
  • Alexandra Varadi

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

  • Bruno Albuquerque & Alexandra Varadi, 2022. "Consumption Effects of Mortgage Payment Holidays: Evidence during the COVID-19 Pandemic," IMF Working Papers 2022/044, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2022/044
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=513590
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    Cited by:

    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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