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

58 Pages Posted: 2 Apr 2022

See all articles by Bruno Albuquerque

Bruno Albuquerque

International Monetary Fund (IMF)

Alexandra Varadi

Bank of England

Multiple version iconThere are 2 versions of this paper

Date Written: February 1, 2022

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.

Keywords: Mortgage payment holidays, Household behaviour, Consumption, High-frequency data, Difference-in-differences, Panel data, mortgage PH, liquidity-constrained household, PH duration, PH application, Mortgages, Income, Income shocks

JEL Classification: D14, E21, G21, E25, G01

Suggested Citation

Albuquerque, Bruno and Varadi, Alexandra, Consumption Effects of Mortgage Payment Holidays: Evidence During the COVID-19 Pandemic (February 1, 2022). IMF Working Paper No. 2022/044, Available at SSRN: https://ssrn.com/abstract=4070778

Bruno Albuquerque (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

HOME PAGE: http://https://sites.google.com/view/brunoalbuquerque19

Alexandra Varadi

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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