Mortgage Choice Determinants: the Role of Risk and Bank Regulation

Mardi Dungey, Firmin Doko Tchatoka, Graeme Wells and Maria Belen Yanotti ()
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Maria Belen Yanotti: School of Business and Exonomics, University of Tasmania

No 2014-03, Working Papers from University of Tasmania, Tasmanian School of Business and Economics

Abstract: This paper sheds new light on the role of borrower characteristics in mortgage product choice, and how these are impacted by regulatory capital requirements. Using rich loan-level data from the Australian market we analyse the way in which these risk effects impact the choice between adjustable rate mortgages and a range of complex mortgages which provide reduced initial payments.For the first time we find that all three of income, wealth and mobility risks play a role in product choice. We also investigate the role of regulatory capital requirements in an environment where banks hold mortgage risk on their balance sheet and find that the Basel capital discounts based on loan-to-valuation ratios divide otherwise similar borrowers between ARM and CM product choices. Year:2014

Keywords: Mortgage; Choice; Basel; Banks (search for similar items in EconPapers)
JEL-codes: G18 G21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2014-02-12, Revised 2014-02-12
New Economics Papers: this item is included in nep-ban, nep-rmg and nep-ure
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Citations: View citations in EconPapers (1)

Published by the University of Tasmania, Discussion paper 2014-3

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Journal Article: Mortgage Choice Determinants: The Role of Risk and Bank Regulation (2015)
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