Risk Heterogeneity and Credit Supply: Evidence from the Mortgage Market

Abstract

Further credence to this view is given by observing that variation in stamp duty rates paid depends significantly on regions, reflecting disparities in regional house prices: average London house prices in our sample are over 1.7 times higher than those in Northern Ireland, and London has a greater proportion of observations in our data set. This motivates the addition of regional house price, as well as regional unemployment claimant count rate, as covariates in our empirical specification. Furthermore, we also condition on time and region fixed-effects in an effort to control for unobserved common features unrelated to individual loan pricing. Figure 11 illustrates the extent of geographical dispersions as captured by real house prices and claimant count unemployment rate for each region.