Regional Differences in Credit Supply and the Demand for Mortgage Debt in the UK
Economics and Finance External Seminar
Speaker: Dr. Alla Koblyakova
Institute: Nottingham Trent University
This paper has analysed different responses to tightening credit conditions and changes in mortgage market regulation from various regions and different household groups. The main contribution of the paper is that it offers empirical evidence on the presence of the credit rationing in the post 2008 UK’s mortgage market. Disaggregated by the type of mortgage debt estimations also detect regional deviations in the accessibility to mortgage funds suggesting that since 2008 the North, Yorkshire, East Midlands, Wales, and Northern Ireland experience rationing in access to both variable and fixed mortgage credit funds, while Scotland and the West Midlands had limited access to fixed rate mortgage credits. Variable mortgage holders have been more responsive to changes in mortgage lending rates representing liquidity constrained groups. The younger population, classified as first time buyers continues to be constrained by first time deposit requirements. The methodological approach employs a double hurdle model. The empirical focus of the model is the second hurdle (the size of mortgage debt) in a double hurdle model, and the impact on this hurdle by the choice of either fixed or variable mortgage debt. The cross sectional estimations employed Understanding Society Survey Data, covering newly originated mortgages for the period 2001-2015. Policy implications might include awareness of the possibility of an asymmetric response to tightening lending conditions within the mortgage market across regions which may assist in transmission of financial regulation measures, as the results suggest that even under a national mortgage market where legislative policies do not differ by region, the interaction of a national mortgage market with regional economies generates regional effects, observed by different mortgage type decisions.