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Regressive Interest Rate Expectations and Mortgage Instrument Choice in the United Kingdom Housing Market

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  • David Leece

Abstract

The paper considers the choice of mortgage instrument when the rate of interest is fixed for a short duration, with reversion to a variable (bullet) rate mortgage contract. The research is the first direct test for regressive interest rate expectations using United Kingdom data while testing for wealth and portfolio effects. The econometric modeling uses a variety of nonparametric and parametric techniques to control for classification error in the dependent variable. There is evidence that households adopt regressive interest rate expectations. The lack of statistical significance of wealth and portfolio effects confirms the short run cash flow perspective of United Kingdom mortgage choices.

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  • David Leece, 2001. "Regressive Interest Rate Expectations and Mortgage Instrument Choice in the United Kingdom Housing Market," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 29(4), pages 589-613, April.
    • Handle: RePEc:bla:reesec:v:29:y:2001:i:4:p:589-613
    DOI: 10.1111/1080-8620.00024
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    Cited by:

    1. Masaki Mori & Julian Diaz III & Alan J. Ziobrowski, 2009. "Why Do Borrowers Choose Adjustable-Rate Mortgages over Fixed-Rate Mortgages? : A Behavioral Investigation," International Real Estate Review, Global Social Science Institute, vol. 12(2), pages 98-120.

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