Preface xi

Acknowledgements xiii

1 An Introduction to Mortgage Market Economics 1

General background 1

The different mortgage markets 3

The secondary mortgage market 14

Why study household behaviour? The rationale of this book 18

The structure of the book 21

Reading the book 24

Summary and conclusions 25

Guide to further reading 26

2 The Demand for Mortgage Finance: Theory 28

Introduction 28

The theoretical basis of mortgage demand 29

Modelling mortgage demand under conditions of certainty 30 Modelling mortgage demand under conditions of uncertainty 34

Down payment constraints and mortgage demand 37 Mortgage demand, other mortgage choices and the nature of the economic environment 40

Summary and conclusions 47

Guide to further reading 48

3 The Demand for Mortgage Finance: Empirical Evidence 50

Introduction 50 Some general issues encountered in estimating mortgage demand equations 51

The general findings of United States research 55

Empirical research in the United Kingdom 58

A comparison of United States and United Kingdom research 64

Summary and conclusions 65

Guide to further reading 67

4 The 'Tilt', Mortgage Designs and the Amortisation of Debt 69

Introduction 69

The tilt and cash constraints 71

Mortgage instruments for dealing with the tilt 76

The role of the flexible amortisation of mortgage debt 79

Perspectives on the maturity of mortgage debt 84

Empirical studies of amortisation behaviour 86

Summary and conclusions 88

Guide to further reading 90

5 Rationing, Mortgage Market Adjustment and Separating Equilibrium 92

Introduction 92

A classification of credit rationing in the mortgage market 93

Disequilibrium rationing 95

Market adjustment and dynamic rationing 96 Asymmetric information and equilibrium credit market rationing 98

Summary and conclusions 111

Guide to further reading 112

6 Credit Rationing, Mortgage Market Adjustment and

Separating Equilibrium: Empirical Evidence 113

Introduction 113 United Kingdom (disequilibrium) mortgage credit rationing research 114 United States (disequilibrium) mortgage credit rationing research 116

Modelling mortgage demand under credit rationing 118

Mortgage market adjustment and dynamic credit rationing 122 Equilibrium rationing separating equilibrium and liquidity constraints 125

Mortgage credit rationing in other economies 128

Summary and conclusions 129

Guide to further reading 130

7 The Household's Choice of Mortgage Design: Theory 132

Introduction 132 Theoretical determinants of the choice of mortgage instrument and contract heterogeneity 134

Payment scheduling and mortgage contract heterogeneity 134 Mortgage demand under uncertainty and mortgage contract heterogeneity 138 Information asymmetry and mortgage contract heterogeneity 145 Interest rate expectations and mortgage contract heterogeneity 150

Summary and conclusions 154

Guide to further reading 155

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