Mortgage Choice Determinants: The Role of Risk and Bank Regulation

Mardi Dungey; Firmin Doko Tchatoka; Graeme Wells; María B. Yanotti

doi:10.1111/1475-4932.12205

Mortgage Choice Determinants: The Role of Risk and Bank Regulation

Mardi Dungey
, Firmin Doko Tchatoka
, Graeme Wells
, María B. Yanotti^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

7 Citations (Scopus)

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
Pages (from-to)	417-437
Number of pages	21
Journal	Economic Record
Volume	91
Issue number	295
DOIs	https://doi.org/10.1111/1475-4932.12205
Publication status	Published - 1 Dec 2015

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title = "Mortgage Choice Determinants: The Role of Risk and Bank Regulation",

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.",

author = "Mardi Dungey and \{Doko Tchatoka\}, Firmin and Graeme Wells and Yanotti, \{Mar{\'i}a B.\}",

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AB - 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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JF - Economic Record

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Mortgage Choice Determinants: The Role of Risk and Bank Regulation

Abstract

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