Mortgage Market Disruptions

31 Pages Posted: 3 Nov 2020

See all articles by Philippe Bracke

Philippe Bracke

Financial Conduct Authority

Karen Croxson

Financial Conduct Authority

Daoud Fakhri

affiliation not provided to SSRN

Paolo Surico

London Business School

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: October 1, 2020

Abstract

Using the universe of residential mortgage contracts offered and originated in the United Kingdom, we document the major trends associated with the pandemic of 2020 and compare them to the financial crisis of 2007-09. Looking at initial impact, the mortgage market disruptions of 2020 were larger and more abrupt than in 2007-09; as of June 2020, the recovery had been much faster, although uncertainty remains over whether the momentum will persist. Products with loan-to-value above 90% or loan-to-income above 4 took the largest hit but their market shares had begun to rebound since May 2020. In contrast, the Great Recession was characterised by a more gradual but far more persistent decline in originations, especially among riskier borrowers, as the recovery did not start until 18 months after the onset of the financial crisis. The share of remortgagors that extract housing equity has declined significantly in the first months of the 2020 pandemic and the amount withdrawn has been typically smaller than in most of the previous years. By the end of 2020 Q2, roughly one in five mortgages were benefitting from payment deferrals while repossession orders had virtually disappeared following the temporary ban introduced by the Financial Conduct Authority in March 2020.

Keywords: Covid pandemic, credit supply, financial crisis, mortgage originations

JEL Classification: G21, G51, H12

Suggested Citation

Bracke, Philippe and Croxson, Karen and Fakhri, Daoud and Surico, Paolo and Valletti, Tommaso M., Mortgage Market Disruptions (October 1, 2020). CEPR Discussion Paper No. DP15381, Available at SSRN: https://ssrn.com/abstract=3723572

Philippe Bracke

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Karen Croxson

Financial Conduct Authority ( email )

25 The North Colonnade
Canary Wharf
London, E14 5HS
United Kingdom

Daoud Fakhri

affiliation not provided to SSRN

No Address Available

Paolo Surico (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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