A micro view on home equity withdrawal and its determinants: Evidence from Dutch households

Abstract

Home equity is the most important part of a household portfolio, but only recently has it become more accessible through innovations in the mortgage market and financial deregulation. This study looks at the factors driving home equity withdrawal on a household level using Dutch survey data and assesses to which degree different theoretical predictions can be empirically supported. There is little evidence that equity withdrawal is used as a buffer against adverse income shocks, with financial motives and life-cycle effects likely to dominate a household's decision. Finally, the study provides first evidence of the impact of changing supply side conditions on home equity withdrawal.

The Impact of House Prices on Consumption in the UK: a New Perspective

“…The impact of house prices is either not explicitly considered (Hurst and Stafford ) or based on a measure of realized house price gains (Disney et al . ; Ebner ; Benito ; Canner et al . ).…”

“…Existing studies of the mortgage equity withdrawal decision have focused on the role of lifecycle or consumption‐smoothing motives (Benito ; Ebner ; Hurst and Stafford ) and financial motives, such as remortgaging to take advantage of lower interest rates (Benito ; Canner et al . ; Ebner ). The impact of house prices is either not explicitly considered (Hurst and Stafford ) or based on a measure of realized house price gains (Disney et al .…”

Channels from Housing Wealth to Consumption

“…Most agree that in economies with liberal financial systems, housing's wealth effects are marked (Muellbauer 2012). Probing further, there is work on the balance of funds realized through home sales, or extracted as secured debt via a 'collateral effect' (Ebner 2010;Greenspan and Kennedy 2007;Muellbauer and Murphy 2008;Schwartz et al 2008). Other questions about the varied channels from housing wealth to consumption are less well explored (Holmans 2001;Holmans and Froszrega, 1997;Smith and Searle 2008), and much more is known about the link between housing wealth and the resilience of whole economies, than about the implications of these wealth effects for households' financial fortunes.…”

Will the Housing Wealth Effect Compensate the Macro-Economy? Evidence From Taiwan’s Domestic Consumption

“…Existing studies on the mortgage equity withdrawal decision focus on the role of the life cycle or consumption and financial motives, such as remortgaging to take advantage of lower interest rates. It allows homeowners to obtain loans and engage in consumption without realizing profits from actual housing transactions (Aoki et al, 2002;Benito, 2009;Canner et al, 2002;Ebner, 2010).…”

“…The LC-PIH serves as the theoretical basis that links the consumption and wealth channels, and implies that the relationship between asset values (wealth) and consumption may be attributable to the direct asset wealth effect. The liquidity constraint 11 (Aladangady, 2017;Aoki et al, 2002;Benito, 2009;Canner et al, 2002;Ebner, 2010) and common factors 12 (Attanasio et al, 2009;Case et al, 2005;Chen & Wang, 2011;Dvornak & Kohler, 2007;Lin et al, 2019) hypotheses should also be taken into account in the empirical analysis.…”