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Abstract
The characteristics of the recently stressed U.K. housing and real estate markets are compared with market behavior and performance in the United States. Four distinguishing characteristics are examined: the mortgage instrument, long‐term price declines, asset derivatives, and a privatized secondary market. In the United Kingdom, lenders shift interest rate risk to borrowers since the market for selling this risk is limited. The market is circumscribed by the inherent characteristics of the prevailing endowment mortgage and the absence of implicit government guarantees for default risk.
To improve liquidity, the United Kingdom has attempted to develop derivative markets for house equity. It has also created a secondary market by privatizing mortgage‐backed security guarantees. Both nascent markets have policy implications for house and mortgage credit risk in the United States.