Mortgage Choice Determinants: The Role of Risk and Bank Regulation
Firmin Doko Tchatoka (),
Graeme Wells and
María B. Yanotti
The Economic Record, 2015, vol. 91, issue 295, 417-437
We shed 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 borrower idiosyncratic risk effects on the choice between variable-rate mortgages and other mortgages with reduced initial payments. We find that income, wealth and mobility risks play a role in product choice. We investigate regulatory capital requirements in a market where banks hold mortgage risk on balance sheet and find that the Basel capital discounts based on loan-to-valee ratios divide otherwise similar borrowers in their mortgage choices.
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Working Paper: Mortgage Choice Determinants: the Role of Risk and Bank Regulation (2014)
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