Joao Cocco (London Business School)

Mortgage refinancing during tightening monetary policy: Evidence from the United Kingdom

Abstract: We study the mortgage refinancing behavior of United Kingdom households around the large unanticipated increase in interest rates that resulted from the September 2022 mini- budget announcement. We uncover large effects in the choice of interest rate fixation term, with a larger proportion of borrowers opting for loans with shorter fixation terms that offer greater flexibility. Fewer borrowers switch lenders when refinancing since it requires passing an affordability assessment. Both loan amounts and repayment terms decrease on average, contributing to household deleveraging. Our results have implications for monetary policy transmission.