Mapping Mortgage Pricing Across the UK: Evidence from Cross Sectional Data Analysis

Abstract

The main contribution of this paper is the empirical evidence of the regional variations in mortgage interest rates within the UK’s mortgage market. Variations in mortgage rates may reflect regional imbalances in the supply and demand for mortgage funds, also incorporating economic considerations of credit risk, pricing policies and various degrees of competition. This study differs from the existing literature in its provision of the previously unexplored findings. This is achieved by estimating a model incorporating three simultaneous equations, applying Understanding Society Survey data for the new mortgages originated in 2001-2014. Applying unique algorithm for calculation of contractual mortgage rates, modelling aims to determine whether mortgage rates vary by region, and urban versus rural location. With a competitive market and elastic supply of credit funds, regional variation in mortgage pricing should not exist. However, this paper finds that mortgage rates tend to be cheaper in England and Northern Ireland, also suggesting more expensive mortgage rates for the rural locations. These are important findings, as an awareness of the possibility of regionally asymmetric response to income shocks and monetary policy decisions may assist in optimising policy considerations.