Mortgage arrears, regulation and institutions: Cross-country evidence

Using a newly constructed database for 26 countries over 2000-2014, we analyze cross-country and within-country differences in mortgage arrears. We find that macro-prudential policies (notably regulatory LTV ratios) are significantly negatively associated with the share of mortgage arrears in total residential debt. Our results suggest that better institutions are also associated with lower delinquency rates, both directly and by enhancing the impact of macro-prudential policies and the right to recourse. Moreover, we find that the effect of macro-prudential policies is conditioned by several mortgage market characteristics, like the maturity of loans, interest rate fixity, and tax deductibility of interest payments.  
 
Keywords: mortgage arrears; macro-prudential regulation; institutions; mortgage market.
JEL classifications: C25; D14; E32; G15.

Working paper no. 580