Header

UZH-Logo

Maintenance Infos

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


Albertazzi, Ugo; Fringuellotti, Fulvia; Ongena, Steven (2018). Fixed Rate versus Adjustable Rate Mortgages: Evidence from Euro Area Banks. Bank of Italy Temi di Discussione 1176, University of Zurich.

Abstract

Why do some residential mortgages carry a fixed interest rate and others an adjustable rate? To answer this question we studied 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 variations observed, we distinguished 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 disentangled 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 of mortgage-backed securities is more widespread.

Abstract

Why do some residential mortgages carry a fixed interest rate and others an adjustable rate? To answer this question we studied 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 variations observed, we distinguished 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 disentangled 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 of mortgage-backed securities is more widespread.

Statistics

Downloads

28 downloads since deposited on 25 Oct 2018
28 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:12 July 2018
Deposited On:25 Oct 2018 08:54
Last Modified:24 Sep 2019 23:50
Series Name:Bank of Italy Temi di Discussione
Number of Pages:69
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3210730
Other Identification Number:merlin-id:16759

Download

Download PDF  'Fixed Rate versus Adjustable Rate Mortgages: Evidence from Euro Area Banks'.
Preview
Content: Published Version
Filetype: PDF
Size: 821kB