There exists a large volume of literature evaluating the mortgage prepayment risk based on the USA's and other developed countries' experiences. With access to detailed loan‐level…
Abstract
Purpose
There exists a large volume of literature evaluating the mortgage prepayment risk based on the USA's and other developed countries' experiences. With access to detailed loan‐level data provided by a national mortgage lender in China, the purpose of this paper is to revisit the empirical question of the determinants of mortgage prepayment probability.
Design/methodology/approach
The paper utilizes unique loan‐level data from a large national residential mortgage lender in China to provide insights into borrowers' prepayment behavior in China under recent market conditions, focusing on the customers' behavior and the segmentation analysis of the prepayment risk.
Findings
The results from a logit model indicate that housing appreciation rate and the stock market performance are important considerations for Chinese borrowers. It was also found that borrowers show the heterogeneous prepayment behavior in different groups. For instance, households who purchase new houses are less sensitive to the LTV ratio. These findings provide empirical support for the risk management in the rapid growing mortgage market in China as well as those in other transitional economies.
Research limitations/implications
Because of the lack of the literature in the immature mortgage markets, the research results may lack generalizability. Therefore, researchers are encouraged to test the proposed propositions further using their own datasets.
Practical implications
The paper includes implications for policy makers to further strategic decision making using a quantitative framework which has not been fully developed in most of the state‐owned banks in China.
Originality/value
This paper has contributed to the analysis of Chinese mortgage prepayment pattern using a large recent micro‐loan level data set. As mortgage borrowers' behavior can be country specific due to the differences in housing policies and housing market structure, this paper sheds new light on the driver factors determining mortgage prepayment in China's mortgage market.
Details
Keywords
The purpose of this paper is to examine the degree of housing affordability in China's 35 large and medium cities. Furthermore, this paper investigates the relationship between…
Abstract
Purpose
The purpose of this paper is to examine the degree of housing affordability in China's 35 large and medium cities. Furthermore, this paper investigates the relationship between housing affordability and the house prices using data from China's 35 large and medium cities from 1996 to 2007.
Design/methodology/approach
This paper constructed the housing affordability index and classified cities in terms of their housing affordability degree. OLS, unit root test and cointegration test have also been used in the empirical test section.
Findings
The results exhibit that the housing price has played a more important role in housing affordability than household income. Thereby, decreasing housing price is more important than household income to alleviate the housing affordability problem. Meanwhile, housing size has exerted a great impact on housing affordability. Accordingly, developing more affordable houses is an alternative to mitigate the housing affordability issue in China. In addition, it is also found that the housing reform facilitates the housing affordability issue due to the low sale price of the public houses; the population growth rate and geographic locations have no significant impact on the housing affordability.
Research limitations/implications
In terms of the research limitations, the heterogeneity factor may be introduced considering the regional heterogeneity of cities in China. Therefore, researchers are encouraged to test the propositions with enriched datasets.
Practical implications
Practical implications are that decision‐makers in government should pay close attention to the risk of the housing bubble. That is, the soaring house price was driven by investment instead of by the demand side.
Originality/value
This paper contributes to defining the dynamic upper boundary of the percentage of housing expenditure to income ratio via Engel's coefficient using the housing market data of 35 large and medium cities in China from 1996 to 2007.