A comment on mortgage procylicality Online publication date: Tue, 29-Jul-2014
by Trond-Arne Borgersen; Karl Robertsen
Global Business and Economics Review (GBER), Vol. 14, No. 4, 2012
Abstract: This paper comments on mortgage procyclicality. A framework for credit constraints along the lines of Kiyotaki and Moore (1997) is applied to illustrate a potential regime shift in the credit risk assessments of mortgagees. Depending on the relationship between house price growth and the alternative rate of return the weight given to collateral and debt-servicing ability may vary according to the house price cycle as mortgagees engage in search-for-yield. The regime shifts induced by increased global liquidity and expectations of continued housing appreciation might stimulate owner-occupation and LTV-ratios and induce mortgage procyclicality.
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