Consumer Credit Conditions in the United Kingdom

62 Pages Posted: 28 Feb 2007

See all articles by Emilio Fernández Corugedo

Emilio Fernández Corugedo

Bank of England

John Muellbauer

University of Oxford - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: November 2006

Abstract

It is widely perceived that credit supply conditions faced by UK consumers, particularly in the mortgage market, have been liberalised since the late 1970s, with implications for the housing market and consumer spending. This paper examines quarterly microdata from the Survey of Mortgage Lenders to learn about changes in credit conditions from loan to value ratios (LVRs) and loan to income ratios (LIRs) of first-time buyers (classified by region and age). It combines data on the proportions of high LVR and high LIR loans with aggregate information on UK consumer credit and mortgage debt to give ten quarterly series for 1975-2001. These are modelled in a ten-equation system. A comprehensive set of economic and demographic influences on the demand and supply of credit, applying relevant sign restrictions, are controlled for. A single time-varying index of credit conditions captures the common variation in the ten credit indicators which cannot be explained by the economic and demographic controls. The broad coverage of credit market indicators and thorough investigation of economic forces driving the credit market should make the resulting credit conditions index more robust than previous estimates. The index increases in the 1980s, peaking towards the end of the decade. It retraces part of this rise in the early 1990s, before increasing again to levels, for one of the two measures, exceeding the previous peak. The index is useful in modelling consumption and the housing market, and in interpreting current monetary conditions. An important by-product of the paper is the model for consumer credit and mortgage debt developed here.

JEL Classification: C32, E44, E51, G21

Suggested Citation

Fernandez-Corugedo, Emilio and Muellbauer, John, Consumer Credit Conditions in the United Kingdom (November 2006). Bank of England Working Paper No. 314, Available at SSRN: https://ssrn.com/abstract=965478 or http://dx.doi.org/10.2139/ssrn.965478

Emilio Fernandez-Corugedo (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

John Muellbauer

University of Oxford - Department of Economics ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom
+44 1865 278 583 (Phone)
+44 1865 278 557 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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