How to spend? The housing market and consumption response to relaxing the down payment constraint

How to spend? The housing market and consumption response to relaxing the down payment constraint

This research used data made available via the Office for National Statistics (ONS) Secure Research Service, which is being expanded and improved with ADR UK funding.

Author: Dr Belinda Tracey (Bank of England) and Professor Neeltje van Horen (Bank of England, Centre for Economic Policy Research, University of Amsterdam)

Date: May 2021

Research summary

This project analysed the effects of relaxing the down payment constraint – the minimum percentage deposit needed to purchase housing property – on housing market activity and household spending in the UK. The researchers compared housing market activity and various household expenditures, including new car registrations, before and after the introduction of Help-to-Buy. The findings highlighted a positive link between a relaxation of the down payment constraint, housing market stimulation and household spending, which differs from standard home purchase and housing wealth channels. The findings of this project were shared with policymakers and government departments.

This project focuses on the Help-To-Buy scheme which was introduced in March 2013 to help marginal home buyers (younger and first-time buyers) secure a mortgage. It did so by relaxing the down payment constraint and facilitating home purchases with only a 5% down payment. By using datasets in the ONS Secure Research Service (SRS) this project examines how lowering the minimum down payment requirement to 5% affects the housing market and whether this type of intervention also spills over to household consumption.

Data used 

The project accessed the Living Costs and Food Survey (LCFS) through the ONS SRS. The LCFS looks at income expenditure data for the publication Family spending. It also collects information on spending patterns and the cost of living which reflect household budgets. It is conducted throughout the year across the whole of the UK and is the most significant survey on household spending in the UK.

This project also used published ONS data for control variables on:

Additional data sources used:

Methods used 

This study employed the geographic variation of Help-to-Buy for identification using data on mortgage sales from the Financial Conduct Authority. Exposure to Help-to-Buy was measured by the proportion of households in a local authority that bought their home with a 5% down payment before the financial crisis (2005-07). This approach enabled a counterfactual analysis and measured what would have happened in the absence of the scheme. Areas with low exposure to Help-to-Buy were used as control groups, as buyers in these areas were less likely to use the scheme.

Analysis of household spending patterns were drawn from the Living Costs and Food Survey. Administrative data on mortgages, car sales and household survey data were also used to demonstrate the positive effects of relaxing borrowing constrains on household consumption.

A difference-in-differences regression analysis took place using the data to discover patterns of housing market activity and household spending patterns before and after the Help-to-Buy came into effect.

Research findings 

Overall, the study estimates that Help-to-Buy resulted in an additional 217,100 home purchases between 2013-16, representing a 9.8% increase. These purchases were mostly driven by first-time buyers (78% of the additional home purchases) and young buyers between the ages of 20-39 years old (91% of the additional home purchases), who likely benefitted from lower down payments (down payments of less than 10%). This means home purchases increased by 4.4% per standard deviation of Help-to-Buy programme exposure.

Interestingly, relaxing the down payment constraint also positively affected household consumption and this was driven in part by younger households. One measure of household consumption – new (loan-financed) car purchases – grew by 42.4% per standard deviation of Help-to-Buy program exposure.

Research impact 

The findings, which suggested that extensions or a withdrawal of future Help-to-Buy schemes may affect forecast consumption paths, were shared with senior policymakers from the Bank of England. They have also been shared with the Department for Transport, and there are plans to discuss the findings with staff from the Department for Levelling Up, Housing and Communities. The UK Government announced that it would re-introduce the Mortgage Guarantee Help-to-Buy Scheme shortly prior to publication of this research. This was motivated mostly by the onset of the Covid-19 pandemic making low down payment mortgages scarce, therefore this research provides timely findings of the potential implication of this housing market initiative.

Research outputs

Publications and reports 

Blogs, news posts, and videos 

Presentations and awards 

About the ONS Secure Research Service 

The ONS Secure Reseach Service (SRS) is an accredited trusted research environment, using the Five Safes Framework to provide secure access to de-identified, unpublished data. If you would like to discuss writing a future case study with us, please get in touch:

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