Mortgage Choice Determinants: The Role of Risk and Bank Regulation

21 Pages Posted: 9 Dec 2015

See all articles by Mardi H. Dungey

Mardi H. Dungey

University of Tasmania; Financial Research Network (FIRN)

Firmin Doko Tchatoka

University of Adelaide

Graeme Wells

University of Tasmania

Maria Yanotti

University of Tasmania; Financial Research Network (FIRN)

Date Written: December 2015

Abstract

We shed new light on the role of borrower characteristics in mortgage product choice, and how these are impacted by regulatory capital requirements. Using rich loan‐level data from the Australian market, we analyse the borrower idiosyncratic risk effects on the choice between variable‐rate mortgages and other mortgages with reduced initial payments. We find that income, wealth and mobility risks play a role in product choice. We investigate regulatory capital requirements in a market where banks hold mortgage risk on balance sheet and find that the Basel capital discounts based on loan‐to‐value ratios divide otherwise similar borrowers in their mortgage choices.

Suggested Citation

Dungey, Mardi H. and Doko Tchatoka, Firmin and Wells, Graeme and Yanotti, Maria, Mortgage Choice Determinants: The Role of Risk and Bank Regulation (December 2015). Economic Record, Vol. 91, Issue 295, pp. 417-437, 2015. Available at SSRN: https://ssrn.com/abstract=2700434 or http://dx.doi.org/10.1111/1475-4932.12205

Mardi H. Dungey (Contact Author)

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Firmin Doko Tchatoka

University of Adelaide ( email )

No 233 North Terrace, School of Commerce
Adelaide, 5005
Australia

Graeme Wells

University of Tasmania

French Street
Sandy Bay
Tasmania, 7250
Australia

Maria Yanotti

University of Tasmania ( email )

French Street
Sandy Bay
Tasmania, 7250
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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