Mortgage affordability and entrepreneurship: Evidence from spatial discontinuity in Help-to-Buy equity loans

We exploit a policy change in the UK Help-to-Buy (HTB) equity loan scheme order to identify causal link between mortgage affordability and entrepreneurship activity at local level. contribute literature on relationship housing finance by demonstrating impact of government loans through release trapped liquidity. When less is required buy house, households could use ‘additional’ liquidity start business. spatial discontinuity treatment methodology take advantage reform 2016, which increased limit provided London. By using data business population postcode sector level, we are able measure new comparing similar areas opposite sides Greater London Authority boundary. Our results show that an increase fosters entrepreneurial affected 20%, resulting 1 more start-up average per year. The businesses mainly single-plant micro enterprises capital intensive sectors with low income volatility.