Consumption Effects of Mortgage Payment Holidays: Evidence During the Covid-19 Pandemic
57 Pages Posted: 16 Mar 2022
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Consumption Effects of Mortgage Payment Holidays: Evidence During the COVID-19 Pandemic
Date Written: February 25, 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
JEL Classification: D14, E21, G51
Suggested Citation: Suggested Citation