Abstract:
We show that relaxing the down payment constraint positively affects household consumption in addition to stimulating housing market activity. We use the UK Help-to-Buy (HTB) program for identifcation. This mortgage market intervention resulted in a sudden reduction of the minimum down payment needed for a mort- gage from 10 to 5 percent. Our research design exploits geographic variation in ex ante exposure to the program. We estimate that relaxing the down payment con- straint increased total home purchases by 9.8 percent; an increase almost entirely driven by first-time and young buyers accessing low-down payment mortgages. More exposed regions also experienced a rise in home-related expenditures, non-durable consumption and loan-financed car purchases. Local demand effects appear to play a signifcant role driving the consumption response. Our fundings thus present new evidence that interventions in the mortgage market can have important local mac- roeconomic spillover effects.