The Amortization Elasticity of Mortgage Demand
Claes Bäckman and
Peter van Santen ()
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Peter van Santen: Faculty of Economics and Business, University of Groningen, Postal: Universiteitscomplex, 9747 AJ Groningen, Netherlands
Economics Working Papers from Department of Economics and Business Economics, Aarhus University
We study how amortization payments affect household borrowing exploiting notches in the Swedish amortization requirement. We argue that amortization payments are costly for borrowers under a number of scenarios, and that they therefore affect credit demand. We provide causal evidence that a percentage point increase in amortization payments reduce LTV ratios by 2-3 percentage points, implying a sizable amortization elasticity of mortgage demand. Borrowers who seek to avoid making payments generally have higher debt, higher income and higher debt-to-income ratios. On the aggregate level, credit growth falls sharply after the introduction of the amortization requirement.
Keywords: Amortization requirements; Macroprudential policy; Household debt (search for similar items in EconPapers)
JEL-codes: E21 E6 G21 G51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc, nep-ban, nep-mac and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2020-16
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