The paper empirically studies the determinants of the large differences, observed among euro-area countries and over time, in the use of various types of mortgages, distinguishing specifically between variable-rate and fixed-rate ones. The analysis considers factors both on the demand side, related to the preferences and characteristics of the borrowers requesting such loans, and on the supply side.
The results suggest that the ratio of variable-rate mortgages to total mortgages tends to be positively influenced by: (i) a historically high inflation volatility; (ii) a relatively high degree of economic and financial literacy; (iii) the absence of regulations to facilitate the use of such loans as collateral for bank funding instruments, such as covered bonds and MBS; and (iv) a marked negative correlation between the unemployment rate and short-term interest rates.
