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Testing a Basic Theoretical Model of Mortgage demand on United Kingdom Data

[journal article]

Leece, David

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Abstract Mortgage demand is a little understood and under researched aspect of the financial behaviour of households. This paper empirically tests the basic results of Brueckner’s model of mortgage demand (Brueckner, 1994) on United Kingdom mortgage market data. The choice of mortgage instrument is used to identify impatient debt maximisers and patient borrowers who borrow at intermediate levels. Thus the research confirms the conditions under which households will use the largest possible mortgage and the circumstances under which savings are invested in the property. A unique contribution of the work is the estimation of mortgage demand equations corrected for endogenous housing demand, for a single housing finance system, where borrows face different opportunity costs of equity in their owner occupied property, allowing a purer test of the theoretical model.
Document language English
Publication Year 2006
Page/Pages p. 2037-2051
Journal Applied Economics, 38 (2006) 17
Status Postprint; peer reviewed
Licence PEER Licence Agreement (applicable only to documents from PEER project)