Mortgage Pricing and Monetary Policy
Matteo Benetton, Alessandro Gavazza, Paolo Surico
American Economic Review · 2025 · Volume 115 · Issue 3
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.
Keywords
Interest Rates: Determination, Term Structure, and Effects, Monetary Policy, Central Banks and Their Policies, Banks, Depository Institutions, Micro Finance Institutions, Mortgages, Financial Institutions and Services: Government Policy and Regulation, Housing Supply and Markets
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