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The impact of house prices on consumption in the UK: a new perspective

Burrows, V. (2018) The impact of house prices on consumption in the UK: a new perspective. Economica, 85 (337). pp. 92-123. ISSN 1468-0335

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To link to this item DOI: 10.1111/ecca.12237

Abstract/Summary

This paper proposes an alternative approach to the question of how house prices influence household consumption by focusing on their impact on mortgage equity withdrawal and household saving. Household-level data are used to derive a measure of expected and unexpected changes in house prices; these are then incorporated into a recursive bivariate probit model of the decision to withdraw housing equity and save. The results suggest that households respond to changes in their housing wealth primarily by increasing their mortgage borrowing, rather than by decreasing their savings, although this is mainly for younger households. However, while changes in housing wealth do not have a direct impact on household saving, they do have an important indirect impact, since they increase the likelihood the household will withdraw equity, which in turn has a negative impact on household saving.

Item Type:Article
Refereed:Yes
Divisions:Faculty of Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:66646
Uncontrolled Keywords:Mortgage equity withdrawal; household saving; expected and unexpected house price changes; bivariate probit model
Publisher:Wiley-Blackwell

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