Mortgage Innovation and House Price Booms

58 Pages Posted: 7 Dec 2015 Last revised: 25 Apr 2023

See all articles by Claes Bäckman

Claes Bäckman

Leibniz Institute for Financial Research SAFE

Chandler Lutz

Securities and Exchange Commission

Date Written: February 248, 2023


We study how mortgage product innovation can cause a housing boom even with a robust regulatory mortgage lending framework and strictly enforced recourse borrowing. We show that the introduction of IO mortgages in Denmark in 2003 ignited a housing boom and caused house prices to increase by 36 percent. In line with IO loans lowering debt-service payments and relaxing payment-to-income constraints, results show higher IO loan uptake and house price growth in areas with greater ex-ante benefits of such mortgages. Overall, our results are relevant for the many countries with elevated IO mortgage use and a robust regulatory framework.

Keywords: Interest Only Mortgages, Housing Booms; Mortgage Lending

JEL Classification: G51, G21, R21, R30

Suggested Citation

Bäckman, Claes and Lutz, Chandler, Mortgage Innovation and House Price Booms (February 248, 2023). Available at SSRN: or

Claes Bäckman

Leibniz Institute for Financial Research SAFE ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323

Chandler Lutz (Contact Author)

Securities and Exchange Commission ( email )

100 F Street, NE
Washington, DC 20549
United States

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
PlumX Metrics