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Mortgage Constraints: Implications for UK Housing Markets

Mortgage Constraints: Implications for UK Housing Markets. 17 th Annual ERES Conference Milano June 2010 Martin Haran Michael McCord David McIlhatton University of Ulster. Introduction. Residential Mortgages - Epicentre of GFC Financial De-regulation

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Mortgage Constraints: Implications for UK Housing Markets

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  1. Mortgage Constraints: Implications for UK Housing Markets 17th Annual ERES ConferenceMilano June 2010 Martin Haran Michael McCord David McIlhatton University of Ulster

  2. Introduction • Residential Mortgages -Epicentre of GFC • FinancialDe-regulation • Enhanced Accessibility to Mortgage Finance • Expansion in Mortgage Product

  3. An Expanded Mortgage Market • Enhanced Efficiency through Competiveness • Growth in UK Sub-prime Lending • Financial Stimulus to Overheated Market • Stability of UK Mortgage Market Post-GFC

  4. Methodological Application Methodological Application

  5. Number of Loans & House Prices (UK)

  6. Number of Loans & House Prices (NI)

  7. Separation of House Price to Income

  8. Detachment of Lending and Income ratio

  9. Relaxation in Lending Standards

  10. Loan-to-Value

  11. LTV & The Cost of Borrowing

  12. PROPERTY AQUISITION BY VALUATION (FIRST-TIME BUYERS)

  13. PROPERTY AQUISITION BY VALUATION (HOME MOVERS)

  14. Preliminary Analysis

  15. Analytical Modelling Where: K is equal to capital (Value of Loans) Y is equal to income D represents the level of debt income multiple LTV is the loan-to-value at time t HP represents house price C is the capacity to service interest payments

  16. Model Analysis ANOVA (89.70, p <.005) • MAVAIL = 12712.82β0 +11.05β1 - 0.168β2 – 75.15β3– 0.027β4

  17. Conclusions • Contraction in risk appetite • Current inflexibility in lending decisions • Wholesale removal of 100% LTV Products • Turbulent period of realignment (Lag), economic (macro & micro) balance • The panacea of financial and economic uncertainty will create ongoing discord.

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