Interest Rates, Debt and Intertemporal Allocation: Evidence from Notched Mortgage Contracts in the United Kingdom

Best, Michael; Cloyne, James; Ilzetzki, Ethan; Kleven, Henrik Jacobsen

doi:10.2139/ssrn.2644287

Cited by 31 publications

(34 citation statements)

References 3 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…DeFusco and Paciorek (2017) use a discontinuity in interest rates at the GSE conforming loan limit (the "jumbo-conforming spread") to estimate a semi-elasticity of loan size to interest rates of only about 2 percent. Best et al (2015) similarly exploit mortgage rate discontinuities in the U.K. and generate estimates slightly larger than DeFusco and Paciorek (2017). Moreover, survey estimates under hypothetical interest rate changes suggest small intensive-margin and willingness-to-pay elasticities (Fuster and Zafar 2015).…”

mentioning

confidence: 89%

The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums

Bhutta

Ringo

2017

FEDS

View full text Add to dashboard Cite

mentioning

confidence: 89%

The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums

Bhutta

Ringo

2017

FEDS

View full text Add to dashboard Cite

“…The mortgage interest rate R M i also differs across individuals because it is determined by both the prevailing market rates and the borrower's characteristics, in particular the LTV-ratio of the mortgage (see evidence in Besley et al, 2013;Best et al, 2015).…”

Section: Assumptionsmentioning

confidence: 99%

“…In our empirical work, we proxy for the extent of an individual's mortgage burden by using the LTV on the outstanding loan. The evidence in Besley et al (2013) and Best et al (2015) shows that a borrower's LTV is among the most important determinants of the interest rate charged by the lender. Therefore our proxy captures the joint effect of M 0i and R M i…”

Section: Comparative Staticsmentioning

confidence: 99%

“…Refinancing decisions are common given the types of mortgages mainly available in the UK: contrary to the US, where 30-year fixed rate mortgages are very popular, mortgage contracts in the UK tend to have fixed rates between 2 and 5 years only and floating rates afterwards, making it potentially profitable to refinance at the end of the fixed rate period. At refinancing, it is likely that individuals with some savings will reduce their LTV: Besley et al (2013) and Best et al (2015) show that the LTV is among the most important determinants of the individual interest rate charged; by reducing their LTV, households can decrease their monthly payments. Obviously, at refinancing, a mortgage can also be increased and equity withdrawn.…”

Section: Descriptive Statisticsmentioning

confidence: 99%

See 1 more Smart Citation

Mortgage Debt and Entrepreneurship

2015

View full text Add to dashboard Cite

We study the link between mortgage debt and entrepreneurship using a model of occupational choice and housing tenure in a setting where loans are recourse-like in the UK and several US states. Our model shows that as long as the mortgage interest rate exceeds the risk-free rate:(i) mortgage debt diminishes the likelihood of entrepreneurship by amplifying risk aversion; and (ii) the negative relation between mortgage debt and entrepreneurship increases with income volatility. Our model also shows that the link between housing equity and entrepreneurship is ambiguously signed because of competing portfolio and wealth effects. We use the British Household Panel Survey to test and confirm the model predictions, and deal with unobservable heterogeneity employing three research designs -individual fixed effects, housing-spell fixed effects, and instrumental variables. A one standard deviation increase in leverage reduces the probability of entrepreneurship by 10-20 percent.JEL Classification: L26, D14, G11, R21

show abstract

“…Spikes are apparent next to important LTV values such as 75, 80, 85, 90 and 95 percent. This bunching is due to the way in which UK mortgages are priced (see Best et al, 2015). Table 1, focusing on Sample 3 and distinguishing between the four subgroups of sales which derived from the Land Registry (LR)-Product Sales Data (PSD) match.…”

mentioning

confidence: 99%

History Dependence in the Housing Market

Bracke

Tenreyro

2016

SSRN Journal

View full text Add to dashboard Cite

Using the universe of housing transactions in England and Wales in the last twenty years, we document a robust pattern of history dependence in housing markets. Sale prices and selling probabilities today are affected by aggregate house prices prevailing in the period in which properties were previously bought. We investigate the causes of history dependence, with its quantitative implications for the post-crisis recovery of the housing market. To do so we complement our analysis with administrative data on mortgages and online house listings, which we match to actual sales. We find that high leverage in the pre-crisis period and anchoring (or reference dependence) both contributed to the collapse and slow recovery of the volume of housing transactions. We find no asymmetric effects of anchoring to previous prices on current transactions; in other words, loss aversion does not appear to play a role over and above simple anchoring.

show abstract

Interest Rates, Debt and Intertemporal Allocation: Evidence from Notched Mortgage Contracts in the United Kingdom

Cited by 31 publications

References 3 publications

The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums

The Effect of Interest Rates on Home Buying: Evidence from a Discontinuity in Mortgage Insurance Premiums

Mortgage Debt and Entrepreneurship

History Dependence in the Housing Market

Contact Info

Product

Resources

About