Mortgage Innovation and House Price Booms

56 Pages Posted: 7 Dec 2015 Last revised: 4 Mar 2022

See all articles by Claes Bäckman

Claes Bäckman

Aarhus University - Department of Economics and Business Economics; Knut Wicksell Centre for Financial Studies

Chandler Lutz

Securities and Exchange Commission

Date Written: February 24, 2022

Abstract

We study the rapid legalization of interest-only (IO) mortgages in Denmark, a country with strictly enforced recourse borrowing and a robust regulatory mortgage lending framework. The Danish introduction of IO mortgages ignited a housing boom: due to their introduction, house prices increased 36 percent. In line with IO loans fueling house price appreciation by lowering debt-service payments, 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 where elevated IO mortgage use has correlated with house price increases.

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 24, 2022). Available at SSRN: https://ssrn.com/abstract=2699824 or http://dx.doi.org/10.2139/ssrn.2699824

Claes Bäckman

Aarhus University - Department of Economics and Business Economics ( email )

Fuglesangs Allé 4
Aarhus V, 8210
Denmark

Knut Wicksell Centre for Financial Studies ( email )

Box 7080
Lund, SE-220 07
Sweden

Chandler Lutz (Contact Author)

Securities and Exchange Commission ( email )

100 F Street, NE
Washington, DC 20549
United States

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