On the economic impacts of mortgage credit expansion policies: Evidence from help to buy

Abstract

We take advantage of two spatial discontinuities in Britain's Help to Buy (HtB) scheme to explore the effectiveness and distributional implications of mortgage credit expansion policies. Employing a Difference-in-Discontinuities design, we find that HtB significantly increased house prices and had no detectable effect on construction volumes in severely supply constrained and unaffordable Greater London. Conversely, HtB did increase construction numbers without a noticeable effect on prices near the English/Welsh border, an affordable area with comparably lax supply conditions. While HtB did not help would-be-buyers in already unaffordable areas, it boosted the financial performance of developers participating in the scheme.