American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Mortgage Pricing and Monetary Policy
American Economic Review
vol. 115,
no. 3, March 2025
(pp. 823–63)
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.Citation
Benetton, Matteo, Alessandro Gavazza, and Paolo Surico. 2025. "Mortgage Pricing and Monetary Policy." American Economic Review 115 (3): 823–63. DOI: 10.1257/aer.20211229Additional Materials
JEL Classification
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- G21 Banks; Depository Institutions; Micro Finance Institutions; Mortgages
- G28 Financial Institutions and Services: Government Policy and Regulation
- R31 Housing Supply and Markets