Demand and Supply of Mortgage Credit

26 Pages Posted: 19 Nov 2015

See all articles by Alex Van de Minne

Alex Van de Minne

University of Connecticut - Department of Finance; Massachusetts Institute of Technology (MIT)

Federica Teppa

De Nederlandsche Bank

Date Written: November 17, 2015

Abstract

This paper estimates demand and supply of mortgage credit by using a hierarchical trend model. The empirical analysis is based on loan-level data covering the years 2005-2014 in the Netherlands. We find that high-income households take out higher loan amounts and have higher collateral values. Interest rates are negatively related to both loan amounts and collateral values. The common trend in the loan equation, a proxy for the changes in demand and supply of mortgage credit over time, suggests a large decline in mortgage demand and supply after 2007. The common trend in the collateral value equation is highly correlated with the common trend in the loan equation, suggesting a high pass-through rate of changes in credit conditions from loan to value. We also find that young household cohorts can afford to buy better quality houses in 2014 than in 2005, even if they could borrow less. On the contrary, older household cohorts take out higher loans in 2014 than in 2005, but their collateral values do not change. We argue that younger households took up less mortgage debt as they became more credit constraint over time. Older households on the other hand suffered from negative home equity, forcing them to take up higher mortgage loans.

Keywords: house prices, mortgage credit, credit conditions

JEL Classification: G21, E51, C32

Suggested Citation

Van de Minne, Alex and Teppa, Federica, Demand and Supply of Mortgage Credit (November 17, 2015). De Nederlandsche Bank Working Paper No. 486. Available at SSRN: https://ssrn.com/abstract=2692446 or http://dx.doi.org/10.2139/ssrn.2692446

Alex Van de Minne (Contact Author)

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

Federica Teppa

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

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