Expanding home-ownership poses a fundament financial challenge arising
out of the long-term nature of the asset, which calls for the development of
institutions and markets to facilitate the flow of long-term funds. Development of
the secondary mortgage market would alleviate classical maturity mismatch and
liquidity issues. The public sector can provide an enabling environment with
sound macroeconomic policies, corporate governance, rule of law, and
enforceability of contracts. This study draws policy implications using the
empirical evidence on the determinants of mortgage depth and penetration across
countries. A large part of the variation in these two dimensions across countries is
explained by the level of their financial development. Development of long-term
sources of funds intermediated through specialized institutions seems particularly
important, as we find that the development of pension funds, which are a source of
long-term funding, is strongly associated with mortgage market development.
Monetary and macro-economic stability, as indicated by a low and stable rate of
inflation, appears to be a strong predictor of mortgage market development. We
also detect a positive relationship between the degree of competition in the financial
sector and mortgage market development.
Mortgage Market Development, Savings, and Growth
