Abstract
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.
Original language | English |
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Pages (from-to) | 417-437 |
Number of pages | 21 |
Journal | Economic Record |
Volume | 91 |
Issue number | 295 |
DOIs | |
Publication status | Published - 1 Dec 2015 |