Non-linear mortgage features can impact policymaking – BoE paper

Adding several features of mortgage debt into an economic model has important implications for policymaking, according to a staff working paper published recently by the Bank of England.

The authors focus on multi-period mortgage debt, occasionally binding collateral constraints and the existence of a “lower bound” for new loans – a borrower may be prevented from taking out a loan but cannot be forced to repay an old loan faster if the value of collateral falls. They integrate these features