Fixed Rate versus Adjustable Rate Mortgages: Evidence from Euro Area Banks

76 Pages Posted: 29 Oct 2019

See all articles by Ugo Albertazzi

Ugo Albertazzi

ECB -DG Monetary Policy

Steven Ongena

University of Zurich

Fulvia Fringuellotti

Federal Reserve Banks - Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: October, 2019

Abstract

Why do residential mortgages carry a fixed or an adjustable interest rate? To answer this question we study unique data from 103 banks belonging to 73 different banking groups across twelve countries in the euro area. To explain the large cross-country and time variation observed, we distinguish between the conditions that determine the local demand for credit and the characteristics of banks that supply credit. As bank funding mostly occurs at the group level, we disentangle these two sets of factors by comparing the outcomes observed for the same banking group across the different countries. Local demand conditions dominate. In particular we find that the share of new loans with a fixed rate is larger when: (1) the historical volatility of inflation is lower, (2) the correlation between unemployment and the short-term interest rate is higher, (3) households' financial literacy is lower, and (4) the use of local mortgages to back covered bonds and mortgage-backed securities is more widespread.

Keywords: cross-border banks, interest rate fixation, mortgages

JEL Classification: F23, G21, G41

Suggested Citation

Albertazzi, Ugo and Ongena, Steven and Fringuellotti, Fulvia, Fixed Rate versus Adjustable Rate Mortgages: Evidence from Euro Area Banks (October, 2019). ECB Working Paper No. 2322. Available at SSRN: https://ssrn.com/abstract=3476564

Ugo Albertazzi (Contact Author)

ECB -DG Monetary Policy ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Steven Ongena

University of Zurich

Rämistrasse 71
Zürich, CH-8006
Switzerland

Fulvia Fringuellotti

Federal Reserve Banks - Federal Reserve Bank of New York

33 Liberty Street
New York, NY 10045
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
9
Abstract Views
48
PlumX Metrics