UK Mortgage Market Research Articles

Securitisation and Rate Setting in the UK Mortgage Market

The objective of this paper is to investigate the way mortgage rates are set by lenders funded by deposits and lenders funded by securitisation. The paper tests the response of both types of lenders to changes in market rates using an Error Correction Model.

Time to default in the UK mortgage market

This paper employs duration analysis to investigate the timing of default in the UK mortgage market. Our analysis is performed on an ex ante basis, in that our explanatory variables are available to mortgage lenders when the loan is first made. We estimate both standard Weibull distributions and generalizations of the Weibull that permit non-monotonic hazard functions. The models fit the data well, suggesting that we have captured the major sources of variation in duration. We find that ‘cash flow’ variables, such as salary and interest rate paid, play the largest role. Surprisingly, loan-to-value ratios are either insignificant or influence default times in a counter-intuitive direction.

Mortgage design in the 1990s: theoretical and empirical issues

Examines recent innovations in the UK mortgage market and links these to the theoretical and empirical literature on the choice of mortgage instrument by households. Low inflation rates and employment insecurity have led to a demand for more flexible payment and amortization scheduling. Estimates a multivariate logit and a probit model to highlight the underlying determinants of amortization rates (mortgage maturity) from 1987 to 1991. Sees affordability criteria and the susceptibility of a household to financial problems as important determinants of extended mortgage maturities while the absence of these problems encourages shorter maturities, consistent with lifecycle behaviour. These choices provide the underpinnings to subsequent mortgage market innovations.

An overview of mortgage‐backed securitisation in the UK

Abstract This paper discusses the factors that have led to the restructuring of the UK mortgage market during the 1980s and the role of mortgage backed securitisation in generating change. It describes the nature of securitisation, its development within the UK system, the specific mechanisms used and particularly the ways in which risks are assessed and mediated. After providing details of issues and an example of a specific vehicle, some of the problems arising from this approach are discussed in relation to risk, liquidity and cost. The article concludes by looking at the conditions necessary for securitisation to play a leading role in the provision of housing finance in the UK as well as some of the implications for mortgagors and lenders.

The measurement of rationing and the treatment of structural change in the uk mortgage market

UK mortgage markets have undergone major structural changes in the past few years, resulting in mortgages no longer being rationed. The ending of rationing has implications for the specification of empirical models of housing demand. Housing models have never adequately resolved how to incorporate unobservable mortgage rationing. Conventional proxy methods are particularly unsuitable, when rationing ceases. In this paper, we propose a new way of measuring rationing directly, which incorporates regime switching. The model of rationing is extensively tested and estimates of rationing for the period 1963–1988 are provided; these may be easily incorporated into housing demand studies.

The Ending of Mortgage Rationing and its Effects on the Housing Market: A Simulation Study

The UK mortgage market has undergone important structural changes in recent years. A consequence has been that households are no longer generally subject to mortgage rationing. In this paper we examine some of the results of this change for the housing market. We first construct a simple theoretical model of the housing and mortgage markets and show, as an illustration of the effect of exogenous changes in general, how mortgage tax relief abolition would have different results under alternative regimes. We then quantify these results using a fully estimated model.