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Time to Homeownership and Mortgage Design

Author

Listed:
  • Gianluca Marcato
  • Rafal Wojakowski

Abstract

Accessibility to homeownership in western countries, especially for middle to low income earners has decreased over time due to several factors such as stringent covenants, pressure of rental growth on household income expenditure and a negative gap between wage and house price growth. Moreover, young households face higher accumulated student loans and, in a steadily rising and strong rental market, they are not able to generate enough savings to cover the initial deposit necessary to become homeowners. We design an income sharing mortgage product where borrowers accept to pledge a portion of their future income to anticipate the time necessary to become homeowners by obtaining a higher LTV (up to 100%). Our analysis nds that this mortgage may be useful for lower income households in periods of higher uncertainty and that it may become less expensive in a high interest rate environment. Finally, this product also embeds an incentive to save, with potential benefits for the overall systemic risk of the banking sector. As a consequence we find that the defaultrisk is not higher than a plain vanilla mortgage with lower LTV.

Suggested Citation

  • Gianluca Marcato & Rafal Wojakowski, 2018. "Time to Homeownership and Mortgage Design," ERES eres2018_298, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2018_298
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    More about this item

    Keywords

    Affordability; Borrowing Constraint; Economic Shocks; Mortgage Product; Risk Transfer;
    All these keywords.

    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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