How do Interest Rate Changes Affect Mortgage Curtailments? Evidence from China

Weida Kuang, Chunlin Liu, Qun Wu and Hongchao Zeng

Real Estate Economics, 2021, vol. 49, issue S2, 395-427

Abstract: This study uses a unique data set of adjustable‐rate mortgages in China to investigate the effect of interest rate changes on mortgage curtailments. A distributed lag model shows that on average, the cumulative curtailment over four months increases by about RMB 1,856 in response to a 1 percentage point increase in interest rates. Further analyses show that the degree of responsiveness of mortgage curtailments depends on the direction of the interest rate changes: curtailments are more responsive to interest rate increases than to decreases. We also find significant heterogeneity in borrowers’ curtailment responses.

Date: 2021
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https://doi.org/10.1111/1540-6229.12285

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