Determinants of Outstanding Mortgage Loan to Value Ratios: Evidence from the Netherlands
59 Pages Posted: 25 Mar 2008 Last revised: 18 Mar 2013
Date Written: March 15, 2013
This paper studies the determinants and behavior of outstanding mortgage loan-to-value (LTV) ratios for a panel of 5,179 households in the pre-mortgage crisis period 1992-2005. We find that outstanding LTVs are driven by household characteristics, life-cycle effects and mortgage type characteristics. LTV declines with the time elapsed since mortgage commencement, but its level is consistently higher (by around 10%) for non-repayment mortgages (such as interest-only or endowment mortgages) than for repayment mortgages (such as linear or annuity mortgages). The difference results from higher debt capacity associated with the possibility of deferring the principal repayment for non-repayment mortgages. Our results indicate that the growing proliferation of non-repayment mortgages has been driven by tightening financing constraints due to declining affordability in the housing market and that the overall quality of outstanding mortgages has substantially deteriorated over time.
Keywords: household finance, mortgages, loan to value, mortgage type
JEL Classification: C21, D14, G21
Suggested Citation: Suggested Citation