Mortgage Market Disruptions

Bracke, P, Croxson, K, Fakhri, D, Surico, P and Valletti, T (2020) Mortgage Market Disruptions. Working Paper. Financial Conduct Authority.

Abstract

Analysing all regulated mortgage contracts offered and originated in the United Kingdom, we document the major trends associated with the pandemic of 2020 and compare them to the financial crisis of 2007-09. Looking at initial impact, the mortgage market disruptions of 2020 were larger and more abrupt than in 2007-09; as of June 2020, the recovery had been much faster, although uncertainty remains over whether the momentum will persist. Products with loan-to-value above 90% or loan-to-income above 4 took the largest hit but their market shares had begun to rebound since May 2020. In contrast, the Global Financial Crisis was characterised by a more gradual but far more persistent decline in originations, especially among riskier borrowers, as the recovery did not start until 18 months after the onset of the financial crisis. The share of remortgagors that extract housing equity has declined significantly in the first months of the 2020 pandemic and the amount withdrawn has been typically smaller than in previous years. By the end of 2020 Q2, roughly 1 in 5 mortgages were benefitting from payment deferrals while repossession orders had virtually disappeared following the temporary ban introduced by the FCA in March 2020.