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Down Payment and Mortgage Rates: Evidence from Equity Loans
... In a similar vein, exploiting geographic variation in exposure to HtB, Tracey and van Horen (2021) find that HtB increased home sales and consumption of non-housing related items. Benetton et al. (2018) utilize the HtB equity loan scheme to investigate the pricing of mortgage credit, demonstrating that a lower down-payment is associated with a higher interest rate at origination, and a higher ex-post default rate. Lastly, Benetton et al. (2019) explore 3 See for example Bostic and Gabriel (2006), Gabriel and Rosenthal (2010) and Fetter (2013). ...
... This enables households to gain access to more attractive mortgage rates from lenders who participate in the scheme. Eligibility conditions require borrowers to have a suitable credit score and to be able to cover the monthly repayments.Benetton et al. (2018) report that lenders adjust mortgage interest rates of HtB borrowers in response to additional default risk associated with lower down payments, but this adjustment is small: it only accounts for 10% of the difference in market interest rates between 75%and 95%-LTV mortgages. 6 Scotland also introduced a HtB Equity Loan Scheme in 2013; h ...
This thesis combines econometric methods with spatial techniques to study the economics of land, housing, and urban policy in the context of both developed and developing countries. It is organized into four independent chapters. The first chapter (co-authored) takes advantage of two spatial discontinuities in Britain’s Help to Buy (HtB) scheme to explore the effectiveness and distributional effects of mortgage credit expansion policies. We find that HtB significantly increased house prices and had no discernible effect on construction volumes in Greater London. We conclude that HtB may be ineffective in already unaffordable and supply constrained areas. The second chapter studies the determinants of floor area ratio (FAR) limit, a major form of land use regulation that specifies construction density, in China. I develop a spatial equilibrium framework to explore the designation process of FAR limit and the trade-off faced by local governments. Exploiting a rich dataset of land transactions and the exogenous variation generated by a central government policy, I find that local budgetary revenue has a negative impact on FAR design. The third chapter (co-authored) explores the determinants of the speed of residential development after the onset of construction. Using a sample of over 110,000 residential developments in England from 1996 - 2015 and employing an instrumental variable- and fixed effects-strategy, we find that strong local demand increases the rate of site build out, but less so for projects located in areas with more restrictive supply constraints and less competition among developers. The last chapter measures ‘regulatory tax’ in 117 major Chinese cities by using a spatially matched dataset of land plots and residential projects. The measure shows substantial variations in regulatory restrictiveness across Chinese cities. I also find that housing prices respond more strongly to local demand shocks in cities with more severe regulatory and geographical constraints.
... Convergence of mortgage rates was sharp [11,12]. In major markets, such as the UK and the Scandinavian countries, there has been a tightening of returns and risk premiums, especially after the financial crisis: capital investors (some of them local) found it less attractive to invest in more exotic destinations [13]. In China, housing price inflation is partly driven by domestic small investors. ...
The purpose of this study is to formulate a model for sustainable development of the mortgage market in Azerbaijan, taking into account commercial risks of housing construction, the risks of the construction industry, social visions of mortgages, state pressure, and support. The following five key research stages can be distinguished. Namely, identification of commercial risks of housing construction based on a survey; evaluation of the effectiveness of risk diversification strategy; determination of the social vision of a mortgage; substantiating the main directions of state pressure and support for mortgage market development; and creation of a model for sustainable development of the mortgage market in Azerbaijan. At the same time, it is proposed to use a methodological approach to assessing the effectiveness of the model based on the construction of the multivariate linear regression equation. The inclusive model of sustainable development of the mortgage market in Azerbaijan provides for the formation of a favorable institutional environment. Given the selected modules, forecasting the effectiveness of the proposed inclusive model demonstrates its effectiveness in the direction of enhancing mortgage lending based on interest rate regulation taking into account the benefits of green housing construction.
How effective is the relaxation of the countercyclical capital buffer (CCyB) at a time when other residential macro-prudential tools are tight? Evidence in this chapter shows that GDP growth increases in response to loosening in the mortgage market credit conditions index (MMCI) while the excess capital adequacy ratio (CAR), the repo rate and the lending spreads also decline. The loosening in the MMCI is transmitted via a decline in the repo rate and lending spreads which in turn raises GDP growth. The decline in excess CAR is also largely transmitted via the loosening of the MMCI and the lending rate spreads. The decline in excess CAR and loose lending conditions imply an accommodative monetary policy stance. The results show that GDP growth and inflation increase more in response to loose MMCI compared to an unexpected reduction in excess CAR. But a decline in the CCyB, because it is a credit supply shock, depresses the lending rate spread more than the loosening in the MMCI shock. This means that a lower CCyB shock and the loosening of the MMCI shock are transmitted into bank lending via the same channels but exert different effects. Furthermore, loose MMCI and the reduction in the CCyB reinforce each other’s effects and those of accommodative monetary policy on GDP growth and the compression in the lending rate spreads. Thus, the relaxation of the CCyB is more potent when other residential macro-prudential tools are loosened. The relaxation of the CCyB and loose lending conditions complement accommodative monetary policy and move the lending rate spread and GDP growth in the same direction. Hence, these tools need to be systematically co-ordinated to have the desired effects on real economic activity.
How can section 25(5) of the constitution be redrafted to protect gender equity? What are the implications for communal land? This chapter presents evidence showing that nationally, women constitute only 23 per cent of land redistribution beneficiaries. We argue that this can be achieved by clearly defining, stating and being explicit in section 25(5) of the constitution as to what is meant by and what constitutes equitable access. What about the criteria set out in 25(3) of the constitution to decide what is fair, just and equitable compensation? Is there a case to redraft and expand criteria in making decisions about the trade-offs? We argue that by specifically and explicitly including the market value of the property as one of the criteria or variables to resolve the trade-offs involved in solving the problem of what is fair, just and equitable compensation, the constitution has legitimised and constitutionalised the market forces as one of the key pillars that can solve the problem of land reform and redistribution in South Africa. We argue that the constraining factor in the application of discretion and judgement has to be anchored by justice, the need to reform landownership patterns and nation-building.
Using a new narrative measure of fiscal policy shocks for the United Kingdom, we show that households with mortgage debt exhibit
large and significant consumption responses to tax changes. Home-owners without a mortgage, in contrast, do not adjust their
expenditure, with responses not statistically different from zero at all horizons. We compare our findings to the predictions
of traditional and newer theories of liquidity constraints, providing a novel interpretation for the aggregate effects of
tax changes on the macroeconomy.
This paper explores the causes and consequences of cross-country variation in mortgage market structure. It draws on insights from several fields: urban economics, asset pricing, behavioral finance, financial intermediation, and macroeconomics. It discusses lessons from the credit boom, the challenges of mortgage modification in the aftermath of the boom, consumer financial protection, and alternative mortgage forms and funding models. The paper argues that the US has much to learn from mortgage finance in other countries, and specifically from the Danish implementation of the European covered bonds system.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.
This paper presents a simple model of trade in the housing market. The crucial feature is that a minimum down payment is required
for the purchase of a new home. The model has direct implications for the volatility of house prices, as well as for the correlation
between prices and trading volume. The model can also be extended to address the correlation between prices and time-to-sale,
as well as certain aspects of the cyclical behavior of housing starts.