Determinants of Outstanding Mortgage Loan to Value Ratios: Evidence from the Netherlands

59 Pages Posted: 25 Mar 2008 Last revised: 18 Mar 2013

See all articles by M. Ricardo Cunha

M. Ricardo Cunha

Portuguese Catholic University - Porto

Bart M. Lambrecht

University of Cambridge - Judge Business School; Centre for Economic Policy Research (CEPR)

Grzegorz Pawlina

Lancaster University - Department of Accounting and Finance

Date Written: March 15, 2013

Abstract

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

Cunha, M. Ricardo and Lambrecht, Bart and Pawlina, Grzegorz, Determinants of Outstanding Mortgage Loan to Value Ratios: Evidence from the Netherlands (March 15, 2013). EFA 2009 Bergen Meetings Paper. Available at SSRN: https://ssrn.com/abstract=1107822 or http://dx.doi.org/10.2139/ssrn.1107822

M. Ricardo Cunha

Portuguese Catholic University - Porto ( email )

Porto
Portugal

Bart Lambrecht

University of Cambridge - Judge Business School ( email )

Trumpington Street
Cambridge, CB2 1AG
United Kingdom
44-(0)-1223-339700 (Phone)
44-(0)-1223-339701 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Grzegorz Pawlina (Contact Author)

Lancaster University - Department of Accounting and Finance ( email )

The Management School
Lancaster LA1 4YX
United Kingdom
+ 44 1524 592834 (Phone)
+ 44 1524 847321 (Fax)

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