We develop a macroeconomic agent-based model of the UK to study the joint impact of borrower- and lender-based prudential policies on the housing and credit markets and the wider economy. We compare higher capital requirements, a loan-to-income cap on owner-occupier mortgages, and both combined. We find that tighter capital requirements reduce lending and housing transactions, the LTI cap lowers house prices relative to income and the homeownership rate, and both policies have a positive impact on real GDP and unemployment.

Joint with Marco Bardoscia, Marc Hinterschweiger, Adrian Carro, Lilit Popoyan, Mauro Napoletano and Andrea Roventini

Journal of Economic Behavior & Organization, 2025 | ABS 3

Slides

We analyze the distributional effects of macroprudential policy using the 2014 U.K. 15% limit on high loan-to-income mortgages. Exploiting loan-level mortgage data, we compare lenders differentially exposed to the limit, before and after its introduction and following the Brexit referendum. We find lower credit to low-income borrowers postregulation, consistent with adverse selection problems, but better house price growth and lower mortgage defaults for these borrowers in policy-affected areas after the referendum.

Joint with José-Luis Peydró, Francesc Rodriguez-Tous and Jagdish Tripathy

Review of Financial Studies, 2024 | ABS 4*

We develop an agent-based model of the UK housing market, calibrated with micro-data, to study the effects of macroprudential policy experiments on households such as first-time buyers, buy-to-let investors and renters. We compare a hard loan-to-value limit and a soft loan-to-income limit against a no-policy benchmark. We find that these experiments tend to mitigate the house price cycle, and that effects can spill over to the rental sector through a shift in home ownership towards buy-to-let investors.

Joint with Adrian Carro, J. Doyne Farmer and Marc Hinterschweiger

Industrial and Corporate Change, 2023 | ABS 3

We review the Basel Committee’s 2010 assessment of the long-term economic impact of stronger capital requirements in light of later studies. Drawing on optimal capital studies, a survey of the Basel Committee’s Research Task Force members and the wider academic literature, we compare estimates of the macroeconomic benefits and costs of higher capital. We find that net benefits are positive over a wide range of capital levels, and that the optimal level is likely similar to, or higher than, originally estimated.

Joint with Martin Birn, Olivier de Bandt, Simon Firestone, Matías Gutiérrez Girault, Diana Hancock, Tord Krogh, Hitoshi Mio, Donald P. Morgan, Ajay Palvia, Valerio Scalone, Michael Straughan, Alexander H. von Hafften and Missaka Warusawitharana

Journal of Risk and Financial Management, 2020

We study how changes to bank-specific capital requirements affect mortgage lending, using loan-level data on all new UK mortgages issued between 2005 and 2007. We exploit the UK’s pre-crisis regime of time-varying, bank-specific requirements and examine their interaction with monetary policy. We find that higher capital requirements reduce mortgage loan size, but not for borrowers with an impaired credit history, consistent with risk shifting, and that monetary policy tightening may mitigate this contraction through retained earnings.

Joint with Tomasz Wieladek

Journal of Financial Intermediation, 2018 | ABS 4

I develop a theoretical model of the housing market with noise traders to study how housing futures trading affects housing demand, house price volatility and housing bubbles. I introduce housing futures and examine three channels: separating housing consumption from investment decisions, allowing short-selling, and attracting additional traders seeking portfolio diversification. I find that, for a large set of parameter values, housing futures trading decreases house price volatility and increases the welfare of households and investors.

Cited by Nobel laureate Robert J. Shiller and co-authors in the Journal of Economic Perspectives (2020).

Journal of Real Estate Finance and Economics, 2018 | ABS 3 

We describe the Bank of England/NMG Survey of Household Finances, which the Bank has commissioned annually since 2004, setting out its methodology and assessing its strengths and weaknesses relative to other household surveys. We find that it provides a timelier guide to developments in household balance sheets, appears better at measuring financial distress, and covers topical policy questions often unavailable elsewhere, although it may carry a greater risk of selection based on unobservable characteristics.

Joint with Philip Bunn, Alice Pugh and Gareth Anderson

Fiscal Studies, 2016 | ABS 2