The impact of refinancing on housing outcomes among lower-income households

Abstract

In this paper, we explore how refinancing influences subsequent housing outcomes for financially vulnerable homeowners, including overcrowding, homeownership sustainability, and residential mobility. Drawing on a unique dataset of refinance applicants to the Startlån mortgage programme in Norway, we model these housing outcomes as a function of being approved for mortgage refinancing and a wide range of demographic, socioeconomic, and housing characteristics matched from various public registries, as well as local housing market characteristics. We test, and where appropriate, control for endogeneity in the refinance mortgage approval decision using endogenous treatment modelling. We find a strong positive effect of refinancing: approved mortgage applicants have a 13 percentage points higher probability of sustaining homeownership compared to declined applicants. Refinancing also decreases the number of post-application moves by about a third, and increases the amount of living space available. Our results demonstrate the benefits of access to prime rate refinancing as a tool to stabilise housing careers for lower-income homeowners.