Work

Mortgage Pricing and Monetary Policy

Year: 2025

Type: article

Abstract: This paper examines how central bank policies influence mortgage pricing in the United Kingdom. It shows that lenders price discriminate by offering two-part tariffs of interest rates and origination fees, and during unconventional monetary policies like the Funding for Lending Scheme, lenders reduced interest rates while increasing fees. Using a model of mortgage demand and lender competition, we find that central bank policies increased mortgage lending. Additionally, banning origination fees would reduce lending, as fees help lenders capture surplus while allowing them to price discriminate across borrowers with different sensitivities to rates and fees. (JEL E43, E52, E58, G21, G28, R31)

Source: American Economic Review

DOI: 10.1257/aer.20211229

Authors: Matteo Benetton, Alessandro Gavazza, Paolo Surico

Institutions: University of California, Berkeley, London School of Economics and Political Science, Centre for Economic Policy Research, London Business School

Language: English

Topic: Housing Market and Economics

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

Funder: H2020 European Research Council

Awards: New issues in the Analysis of Business Cycles, Empirical Analyses of Markets for Consumer Financial Products and their Effects