From Central Counter to Local Living: Pass-Through of Monetary Policy to Mortgage Lending Rates in Districts

Jiri Gregor, Jan Janku and Martin Melecký

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper studies the pass-through from the market benchmark rate (proxied by the 5-year swap rate) to interest rates on all newly issued residential mortgage loans in the Czech Republic-an EU country. It tests for and explains the potential spatial heterogeneity in the pass-through to local mortgage rates highlighted by the literature for the US (Scharfstein & Sunderam, 2016). This spatial pass-through has not been studied in the context of the EU with its specific mortgage loan market structure. Using unique data on residential mortgages in the Czech Republic over 2016-2021, we show that the pass-through varies notably across districts and is significantly driven by local mortgage market concentration (bank market power) and the unemployment rate. We find a lower aggregate pass-through than previous studies (about 0.5). The most important pricing factors for residential mortgage loans appear to be the loan-to-value ratio, the net income of the borrower, the loan maturity, and the length of the fixed-rate period.

Keywords: Banking market concentration; districts and regions; heterogeneity; interest rate pass-through; mortgage lending rates (search for similar items in EconPapers)
JEL-codes: E43 G21 G51 R32 (search for similar items in EconPapers)
Date: 2022-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mon, nep-tra and nep-ure
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