How do Interest Rate Changes Affect Mortgage Curtailments? Evidence from China

This study uses a unique data set of adjustable‐rate mortgages in China to investigate the effect of interest rate changes on mortgage curtailments. A distributed lag model shows that on average, the cumulative curtailment over four months increases by about RMB 1,856 in response to a 1 percentage p...

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Bibliographic Details
Published in:Real estate economics 2021-09, Vol.49 (S2), p.395-427
Main Authors: Kuang, Weida, Liu, Chunlin, Wu, Qun, Zeng, Hongchao
Format: Article
Language:English
Subjects:
Heterogeneity
Interest rates
Mortgages
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Summary:This study uses a unique data set of adjustable‐rate mortgages in China to investigate the effect of interest rate changes on mortgage curtailments. A distributed lag model shows that on average, the cumulative curtailment over four months increases by about RMB 1,856 in response to a 1 percentage point increase in interest rates. Further analyses show that the degree of responsiveness of mortgage curtailments depends on the direction of the interest rate changes: curtailments are more responsive to interest rate increases than to decreases. We also find significant heterogeneity in borrowers’ curtailment responses.
ISSN:1080-8620
1540-6229
DOI:10.1111/1540-6229.12285