Mortgage Design and Slow Recoveries. The Role of Recourse and Default.

Gete, Pedro; Zecchetto, Franco

doi:10.2139/ssrn.3082409

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Cited by 6 publications

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“…2 Traditional non-recourse mortgages involve risk-sharing in the event of default (Ghent and Kudlyak, 2011;Gete and Zecchetto, 2018). Shared equity mortgages may prevent default and foreclosure externalities (Campbell, Giglio, and Pathak, 2011;Guren and McQuade, 2016).…”

Section: Introductionmentioning

confidence: 99%

Housing Consumption and Investment: Evidence from Shared Equity Mortgages

Benetton

Bracke

Cocco

et al. 2021

The Review of Financial Studies

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We exploit a U.K. government-sponsored product and provide evidence on shared equity mortgages. The analysis shows how the interaction of house price growth and leverage regulation promotes product adoption. Following an increase in the equity limit, households use the additional financing to buy more expensive properties rather than reduce leverage. Equity used as a complement to debt is likely less beneficial for financial stability than when used as a substitute. Equity borrowers are less likely to change lenders when refinancing their senior debt. Finally, we measure the equity provider returns, which are affected by selection and undervaluation at repayment.

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