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A Dynamic Analysis of Mortgage Arrears in the UK Housing Market

Author

Listed:
  • Catarina Figueira

    (Cranfield School of Management, Cranfield University, Cranfield, Bedfordshire, MK43 0AL, UK, Catarina.Figueira@cranfield.ac.uk)

  • John Glen

    (Cranfield School of Management, Cranfield University, Cranfield, Bedfordshire, MK43 0AL, UK, John.Glen@cranfield.ac.uk)

  • Joseph Nellis

    (Cranfield School of Management, Cranfield University, Cranfield, Bedfordshire, MK43 0AL, UK, J.G.Nellis@cranfield.ac.uk)

Abstract

The UK economy has enjoyed an unprecedented period of positive economic growth since the early 1990s. The absence of recession for more than a decade has been accompanied by a sustained decline in the level of mortgage arrears, as reported by major lenders. This paper seeks to examine the factors which have driven the reduction in mortgage arrears and, in doing so, identify those factors which are most likely to cause arrears to increase in the future, should economic conditions deteriorate. The paper employs the Johansen methodology to test for the presence of multiple cointegrating vectors. An error correction model is estimated in order to examine long-run and short-run dynamics in mortgage arrears. In line with previous research concerning the causes of mortgage arrears, the results presented here emphasise the importance of changes in the rate of unemployment, loan-income and debt-service ratios. More importantly, our results highlight the statistical significance of unwithdrawn housing equity as an explanatory variable with respect to mortgage arrears.

Suggested Citation

  • Catarina Figueira & John Glen & Joseph Nellis, 2005. "A Dynamic Analysis of Mortgage Arrears in the UK Housing Market," Urban Studies, Urban Studies Journal Limited, vol. 42(10), pages 1755-1769, September.
    • Handle: RePEc:sae:urbstu:v:42:y:2005:i:10:p:1755-1769
    DOI: 10.1080/00420980500231670
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    References listed on IDEAS

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    Cited by:

    1. Janine Aron & John Muellbauer, 2010. "Modelling and Forecasting UK Mortgage Arrears and Possessions," Economics Series Working Papers 499, University of Oxford, Department of Economics.
    2. Aron, Janine & Muellbauer, John, 2016. "“Modelling and forecasting mortgage delinquency and foreclosure in the UK.”," Journal of Urban Economics, Elsevier, vol. 94(C), pages 32-53.
    3. Crook, Jonathan & Banasik, John, 2012. "Forecasting and explaining aggregate consumer credit delinquency behaviour," International Journal of Forecasting, Elsevier, vol. 28(1), pages 145-160.
    4. Jorge E. Galán & Matías Lamas, 2019. "Beyond the LTV ratio: new macroprudential lessons from Spain," Working Papers 1931, Banco de España.

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