Staff Working Paper No. 919
By Belinda Tracey and Neeltje van Horen
This paper shows that relaxing borrowing constraints positively affects household consumption in addition to stimulating housing market activity. We focus on the UK Help-to-Buy (HTB) program, which provided a sudden relaxation of the down payment constraint by facilitating home purchases with only a 5% down payment. Our research design exploits geographic variation in exposure to HTB and uses administrative data on mortgages and car sales in combination with household survey data. We estimate that the program increased total home purchases by 11%, and the increase was driven almost entirely by first-time and young buyers. Regions that were more exposed to the program experienced a rise in non-durable consumption unrelated to the home and in loan-financed car purchases, in addition to an increase in home-related expenditures. These results are independent of changes in regional house prices. Our findings point to a further link between the housing market and household consumption that does not operate through the home purchase and housing wealth channels.
The consumption response to borrowing constraints in the mortgage market
