HNDA modelling mortgage impacts: guidance

Guidance on data to consider how to model the impact of changes in the mortgage market on scenario outputs from the HNDA Tool.

Possible approaches to modelling mortgage market trends in HNDA Tool

While the previous decade had seen extremely low interest rates, during the recent cost-of-living crisis interest rates have returned to levels last seen before the credit crunch, reducing affordability. This would suggest that, in the HNDA tool, the impact of recent mortgage-market pressures might best be approximated by reducing the price-to-income ratio which is used in the affordability test. The data set out in Figure 1 may help give modellers an idea of what price-to-income ratio to use. For example, the modeller could look at values of the price-to-income ratio in the early 2000s, when interest rates were comparable to current levels. An alternative is to use values from the final decades of the 20th century, before the house-price boom began in Scotland. It should be noted though with respect to this second approach that house prices in Scotland remain significantly elevated compared to levels prior to the 2000s; this might reduce the relevance of trends prior to 2000.

While the average loan-to-value ratio dipped during the initial impact of Covid-19, and there have been periods when riskier mortgage products have been temporarily removed from the market since then, the recovery in the average loan-to-value ratio since the credit crunch has, so far, remained broadly in place. However, Figure 3 suggests there might have been some reduction in riskier lending in recent months. The modeller may therefore wish to include scenarios which capture the potential impact of mortgage lenders cutting back on riskier lending by removing high loan-to-value products from the market for a sustained period. Reduced availability of such products will lead to a decline in the proportion of first-time buyers who have sufficient savings for the now-higher deposit. Due to data limitations relating to the level of household savings in different local authority areas, the proportion of first-time buyers who have sufficient savings to buy cannot be directly calculated in the HNDA tool. Instead, the modeller can adjust down the parameter on the proportion of households who pass the affordability test but who can actually purchase. The HNDA tool default for this parameter is set at 60%.

Data sources

Financial Conduct Authority Mortgage Lending Statistics

Bank of England Database

UK Finance (Note that some UK Finance data is only available with a subscription)

A wide variety of housing market data is summarised in quarterly Scottish Housing Market Review (it is possible to sign up via ScotStat to receive this directly).



Murdo MacPherson - Head of Housing Market Analysis - 0131 244 0803
Charles Brown - Statistician - 0131 244 0870

Centre for Housing Market Analysis
Scottish Government
Victoria Quay

Back to top