The Exposure of Mortgage Borrowers to Interest Rate Risk, Income Risk and House Price Risk – Evidence from Swiss Loan Application Data

Item Type Journal paper
Abstract

We study the exposure of mortgage borrowers in Switzerland to interest rate, income and house price risks and examine how the households' choice of risky mortgages is related to individual interest rate expectations and risk-aversion. Our analysis is based on a unique data set of household mortgage applications from September 2012 until January 2014. Our assessment of risk exposure among mortgage borrowers in Switzerland is highly sensitive to the underlying assumptions on mortgage costs, household income and house value. Our main results suggest that
the exposure of mortgage borrowers to interest rate and house price risks is limited in the medium-term. We further document that the choice of mortgage contract seems to be more influenced by affordability concerns than risk concerns. In particular, individual interest rate expectations hardly affect mortgage contract choice.

Authors Guin, Benjamin & Brown, Martin
Journal or Publication Title Swiss Journal of Economics and Statistics
Language English
Keywords Mortgage Default, Mortgage Choice, Household Finance, Mortgage Risk
Subjects economics
Institute/School s/bf - Swiss Institute of Banking and Finance
University of St.Gallen
HSG Classification contribution to scientific community
Refereed Yes
Date 1 August 2015
Publisher Lang
Place of Publication Bern
Volume 2
Number 1
Page Range 3-37
Number of Pages 35
ISSN 0303-9692
Depositing User Prof. Dr. Martin Brown
Date Deposited 21 May 2015 09:45
Last Modified 23 Aug 2016 11:21
URI: https://www.alexandria.unisg.ch/publications/241138

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Citation

Guin, Benjamin & Brown, Martin (2015) The Exposure of Mortgage Borrowers to Interest Rate Risk, Income Risk and House Price Risk – Evidence from Swiss Loan Application Data. Swiss Journal of Economics and Statistics, 2 (1). 3-37. ISSN 0303-9692

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https://www.alexandria.unisg.ch/id/eprint/241138
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