Capital requirements, mortgage rates and house prices

Sven Damen and Stef Schildermans

Journal of Banking & Finance, 2022, vol. 143, issue C

Abstract: We study the effect of an increase in capital requirements for residential mortgages on mortgage rates and house prices. We exploit a unique quasi-experiment in which affected banks faced an increase in risk weights of five percentage points. Using a difference-in-differences estimator, we find that treated banks increase their mortgage rates by 19 basis points. Houses near affected banks have a 2.38% lower sale price after the increase in capital requirements. Our results imply a semi-elasticity of house prices to changes in mortgage rates of 12.3, in line with predictions from a user cost model.

Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:143:y:2022:i:c:s0378426622001923

DOI: 10.1016/j.jbankfin.2022.106596

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