Abstract
We exploit a policy change in the UK Help-to-Buy (HTB) equity loan scheme in order to identify the causal link between mortgage deposit requirements and entrepreneurship activity at the local level. We contribute to the literature on the relationship between home finance and entrepreneurship by demonstrating the impact of government equity loans on entrepreneurship through the release of trapped liquidity. When less equity is required to buy a house, households use the 'additional' liquidity to start a business. We use a spatial discontinuity methodology to take advantage of the reform of the Help-to-Buy scheme in 2016 which increased the limit of equity loans provided in London. By using data on business population at the postcode sector level, we are able to measure the impact of the new policy by comparing similar areas on the opposite sides of the Greater London Authority boundary. Our results show that lower mortgage deposit requirements increase entrepreneurial activity in the affected postcodes by more than 30%. The new businesses are mainly single-plant micro enterprises in capital intensive sectors with low income volatility.
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