Supply driven mortgage choice

Koblyakova, A. ORCID: 0000-0001-9557-3693 and White, M. ORCID: 0000-0001-7508-7882, 2016. Supply driven mortgage choice. Urban Studies. ISSN 0042-0980

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Abstract

Variable mortgage contracts dominate the UK mortgage market (Miles, 2004). The dominance of the variable rate mortgage contracts has important consequences for the transmission mechanism of monetary policy decisions and systemic risks (Khandani et al., 2012; Fuster and Vickery, 2013). This raises an obvious concern that a mortgage market such as that in the UK, where the major proportion of mortgage debt is either at a variable or fixed for less than two years rate (Badarinza, et al., 2013; CML, 2012), is vulnerable to alterations in the interest rate regime. Theoretically, mortgage choice is determined by demand and supply factors. So far, most of the existing literature has focused on the demand side perspective, and what is limited is consideration of supply side factors in empirical investigation on mortgage choice decisions. This paper uniquely explores whether supply side factors may partially explain observed/ex-post mortgage type decisions. Empirical results detect that lenders’ profit motives and mortgage funding/pricing issues may have assisted in preferences toward variable rate contracts. Securitisation is found to positively impact upon gross mortgage lending volumes while negatively impacting upon the share of variable lending flows. This shows that an increase in securitisation not only improves liquidity in the supply of mortgage funds, but also has the potential to shift mortgage choices toward fixed mortgage debt. The policy implications may involve a number of measures, including reconsideration of the capital requirements for the fixed, as opposed to the variable rate mortgage debt, growing securitisation and optimisation of the mortgage pricing policies.

Item Type: Journal article
Publication Title: Urban Studies
Creators: Koblyakova, A. and White, M.
Publisher: SAGE
Date: 2016
ISSN: 0042-0980
Identifiers:
NumberType
10.1177/0042098015623725DOI
Divisions: Schools > School of Architecture, Design and the Built Environment
Depositing User: Jill Tomkinson
Date Added: 26 Feb 2016 09:42
Last Modified: 09 Jun 2017 13:59
URI: http://irep.ntu.ac.uk/id/eprint/27046

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