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From Central Counter to Local Living: Pass-Through of Monetary Policy to Mortgage Lending Rates in Districts

Author

Listed:
  • Jiri Gregor
  • Jan Janku
  • Martin Melecky

Abstract

This paper studies the pass-through from the market benchmark rate (proxied by the 5-year swap rate) to interest rates on all newly issued residential mortgage loans in the Czech Republic-an EU country. It tests for and explains the potential spatial heterogeneity in the pass-through to local mortgage rates highlighted by the literature for the US (Scharfstein & Sunderam, 2016). This spatial pass-through has not been studied in the context of the EU with its specific mortgage loan market structure. Using unique data on residential mortgages in the Czech Republic over 2016-2021, we show that the pass-through varies notably across districts and is significantly driven by local mortgage market concentration (bank market power) and the unemployment rate. We find a lower aggregate pass-through than previous studies (about 0.5). The most important pricing factors for residential mortgage loans appear to be the loan-to-value ratio, the net income of the borrower, the loan maturity, and the length of the fixed-rate period.

Suggested Citation

  • Jiri Gregor & Jan Janku & Martin Melecky, 2022. "From Central Counter to Local Living: Pass-Through of Monetary Policy to Mortgage Lending Rates in Districts," Working Papers 2022/9, Czech National Bank.
    • Handle: RePEc:cnb:wpaper:2022/9
    as

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    File URL: https://www.cnb.cz/export/sites/cnb/en/economic-research/.galleries/research_publications/cnb_wp/cnbwp_2022_09.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Banking market concentration; districts and regions; heterogeneity; interest rate pass-through; mortgage lending rates;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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