Modelling and forecasting UK mortgage arrears and possessions

Aron, Janine and Muellbauer, John (2010) Modelling and forecasting UK mortgage arrears and possessions. SERC Discussion Papers (SERCDP0053). Spatial Economics Research Centre (SERC), London School of Economics and Political Science, London, UK.

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Abstract

This paper presents new models for aggregate UK data on mortgage possessions (foreclosures) and mortgage arrears (payment delinquencies). The innovations include the treatment of difficult to observe variations in loan quality and shifts in forbearance policy by lenders, by common latent variables estimated in a system of equations for arrears and possessions, for quarterly data over 1983-2009. A second innovation is the theory-justified use of an estimate of the proportion of mortgages in negative equity, based on an average debt to equity ratio, as one of the key drivers of possessions and arrears. A third is the systematic treatment of measurement bias in the months in arrears measures. Finally, the paper does not impose a proportional long-run relationship between possessions and arrears assumed in the previous UK literature. A range of economic forecast scenarios for forecasts to 2013 reveals the sensitivity of mortgage possessions and arrears to different economic conditions, highlighting potential risks faced by the UK and its mortgage lenders. A comprehensive review of data on arrears and possessions completes the paper.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.spatialeconomics.ac.uk/SERC/publication...
Additional Information:	© 2010 The Authors
Divisions:	Spatial Economics Research Centre
Subjects:	H Social Sciences > HC Economic History and Conditions
JEL classification:	C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C53 - Forecasting and Other Model Applications E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E27 - Forecasting and Simulation G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R21 - Housing Demand
Date Deposited:	30 Jul 2014 15:16
Last Modified:	11 Dec 2024 19:03
Funders:	Economic and Social Research Council, Department for Business, Innovation & Skills (BIS), Welsh Assembly Government
URI:	http://eprints.lse.ac.uk/id/eprint/58520

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