Supply driven mortgage choice

Variable mortgage contracts dominate the UK mortgage market (Miles, 2004). The dominance of the variable rate mortgage contracts has important consequences for the transmission mechanism of monetary policy decisions and systemic risks (Khandani et al., 2012; Fuster and Vickery, 2013). This raises an obvious concern that a mortgage market such as that in the UK, where the major proportion of mortgage debt is either at a variable or fixed for less than two years rate (Badarinza, et al., 2013; CML, 2012), is vulnerable to alterations in the interest rate regime. Theoretically, mortgage choice is determined by demand and supply factors. So far, most of the existing literature has focused on the demand side perspective, and what is limited is consideration of supply side factors in empirical investigation on mortgage choice decisions. This paper uniquely explores whether supply side factors may partially explain observed/ex-post mortgage type decisions. Empirical results detect that lenders’ profit motives and mortgage funding/pricing issues may have assisted in preferences toward variable rate contracts. Securitisation is found to positively impact upon gross mortgage lending volumes while negatively impacting upon the share of variable lending flows. This shows that an increase in securitisation not only improves liquidity in the supply of mortgage funds, but also has the potential to shift mortgage choices toward fixed mortgage debt. The policy implications may involve a number of measures, including reconsideration of the capital requirements for the fixed, as opposed to the variable rate mortgage debt, growing securitisation and optimisation of the mortgage pricing policies

Divided access and the spatial polarization of housing wealth

Recent research has pointed to increasingly divided housing access across advanced economies. This reflects growing labor market inequality and rising intergenerational divides amplifying the importance of parental resources. At the same time, an increasing spatial polarization of housing markets has driven divergence between high-gain versus low-gain submarkets. This paper confronts how divided access to housing collides with growing spatial inequality in housing markets. The research turns to the Netherlands, drawing on full-population register data. First, GIS mapping exposes spatial polarization in house-value development. Second, household-level modeling demonstrates the impact of income, employment position and parental wealth in divided access to housing submarkets. Taken together, spatial polarization and differentiated access appear fundamental to driving inequalities in housing wealth accumulation