Housing Wealth and the Accumulation of Financial Debt: Evidence from U.K. Households

Abstract

The relationship between housing wealth and the level and growth of debt in financial assets in the United Kingdom is examined, using household-level data. The analysis takes place against a background of rising housing equity and financial debt in several countries, including the UK, since the late 1990s, generating concern among commentators and central bankers as to the prospect of a ‘debt overhang’ if the house price boom ends. The chapter reviews models of how home ownership may give households greater access to both secured (collateralised) and unsecured debt. It shows how home ownership has enabled UK households to gain access to lines of unsecured credit such as credit cards, and that households without housing wealth shift their portfolio of financial credit towards alternative sources. However, there is no evidence across households that greater housing equity is associated either with greater unsecured debt in total, or greater arrears on debt. Moreover, the bulk of housing equity withdrawal occurs among households that are at the stage of the life cycle where they might be expected to reduce wealth, rather than being an across-the-board response to rising housing wealth.