Mortgage Choice Determinants: The Role of Risk and Bank Regulation

Mardi Dungey, Firmin Doko Tchatoka, Graeme Wells, Maria Yanotti

    Research output: Contribution to journalArticle

    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 languageEnglish
    Pages (from-to)417-437
    JournalEconomic Record
    Volume91
    Issue number295
    DOIs
    Publication statusPublished - 2015

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