The Importance of Income and Housing Wealth Constraints for Future Residential Mobility
AbstractWe investigate the size of the mark-up on the lending rate for endowment mortgages, due to expected prepayment by the borrower. For this type of mortgage, prepayment is mostly the result of mobility in the housing market. We control for the risk of default by using a unique data set of Dutch borrowers insured against default. The estimates indicate that households with a higher liquidity constraint are less likely to prepay, as they have a lower mark-up on the lending rate. In contrast, the collateral constraint has a very limited influence on the mark-up. We explain this result as follows. Usually, income constraints are generated at the household level, whereas constraints on housing wealth pertain to the regional level. Hence, income changes may improve the relative position of households in the housing market, but an increase in homeowners. housing wealth does not improve their relative position in the housing market.
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Bibliographic InfoPaper provided by Utrecht School of Economics in its series Working Papers with number 09-05.
Length: 17 pages
Date of creation: Apr 2009
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- D40 - Microeconomics - - Market Structure and Pricing - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-05-16 (All new papers)
- NEP-GEO-2009-05-16 (Economic Geography)
- NEP-URE-2009-05-16 (Urban & Real Estate Economics)
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