Benjamin Guin and Perttu Korhonen
A well-insulated house reduces heat loss during cold winter periods and it keeps outdoor heat from entering during hot summer conditions. Hence, effective insulation can reduce the need for households to use cooling and heating systems. While this can lower greenhouse gas emissions by households, it also reduces homeowners’ energy bills, which can free up available income. This can protect households from unexpected decreases in income (e.g. reduced overtime payments) or increases in expenses (e.g. healthcare costs). It could also help homeowners to make their mortgage payments even if such shocks occurred. But does this also imply that mortgages against energy-efficient properties are less credit-risky?
The interest-only product has undergone tremendous evolution, from its mass-market glory days in the run-up to the crisis, to its rebirth as a niche product. However, since reaching a low-point in 2016, the interest-only market is starting to show signs of life again as lenders re-enter the market.
There are two ways people can make their resources go further when buying a home.
One is to increase the loan-to-value (LTV) ratio and hence increase the amount available to buy a house for a given deposit.
The other is to lengthen the term over which the mortgage is repaid, which increases the size of loan associated with a given level of monthly repayments.
Marius Jurgilas, Ben Norman and Tomohiro Ota.
The final, practical determinant of whether a bank is a going concern is: does it have the liquidity to make its payments as they become due? Thus, the ultimate crucible in which financial crises play out is the payment system. At the height of recent crises, some banks delayed making payments for fear of paying to a bank that would fail (Norman (2015)). This post sets out a design feature in a payment system that creates incentives, especially during financial crises, for banks to keep making payments. This feature could address situations where banks in the system would otherwise be tempted to postpone their payments to a bank that is (rumoured to be) in trouble.