American Economic Review Vol. 115 No. 3 2025

Mortgage Pricing and Monetary Policy

Matteo Benetton¹; Alessandro Gavazza²; Paolo Surico³

¹ Haas School of Business, University of California, Berkeley (email: ) · ² London School of Economics (email: ) · ³ London Business School and CEPR (email: )

Abstract

This paper examines how central bank policies influence mortgage pricing in the United Kingdom. It shows that lenders price discriminate by offering two-part tariffs of interest rates and origination fees, and during unconventional monetary policies like the Funding for Lending Scheme, lenders reduced interest rates while increasing fees. Using a model of mortgage demand and lender competition, we find that central bank policies increased mortgage lending. Additionally, banning origination fees would reduce lending, as fees help lenders capture surplus while allowing them to price discriminate across borrowers with different sensitivities to rates and fees.

DOI

10.1257/aer.20211229

Volume

115

Issue

3

Pages

823-863

Language

en

Sources

bibtex:phds-export.bib openalex crossref

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