Housing Consumption and Investment: Evidence from Shared Equity Mortgages

Benetton, M, Bracke, P, Cocco, J F and Garbarino, N (2022) Housing Consumption and Investment: Evidence from Shared Equity Mortgages. Review of Financial Studies, 35 (8). pp. 3525-3573. ISSN 0893-9454

Abstract

We provide empirical evidence on shared equity mortgages exploiting a UK government sponsored product. The analysis shows how the interaction of house price growth and leverage regulation promotes product adoption. Following an increase in the equity limit, households use the additional financing to buy more expensive properties rather than reduce leverage. Equity used as complement to debt is likely to be less beneficial for financial stability than when used as substitute. Equity borrowers are less likely to change lenders when refinancing their senior debt. Finally, we measure the equity provider returns, which are impacted by selection and under-valuation at repayment.