There are new data to document cross-country variation in mortgage depth and penetration and explores country factors that can explain this variation and answer these questions. Exploring mortgage finance and its determinants is important for both academics and policy makers. The maturity transformation of short-term liabilities into long-term assets, critical for long-term housing finance contracts, is also at the center of financial intermediation theory, with many agency conflicts and market frictions even more obvious in mortgage finance than in other segments of the financial sector.

A mortgage loan is often the major liability of households in developed countries, with the house being the corresponding asset on the household balance sheet, and thus a critical part of household welfare. The importance and structure of mortgage finance is also critical for transmission channels of monetary policy. Housing finance, however, has also been at the center of multiple banking crises, most recently in the U.S., Ireland, and Spain, and recent research has shown that banking crises linked to housing boom and bust cycles are typically deeper than other crises (Claessens et al., 2011).

Mortgage finance is also a critical segment of the policy agenda to “lengthen financial contracts” in many developing countries whose financial systems are dominated by short-term financial contracts and is at the center of attempts to build up nonbank segments of the financial system (Beck et al., 2011). Finally, the issue of housing finance can be seen in the context of a broader socio-economic development agenda.

Many developing and emerging countries are still going through an urbanization process, which will increase the need for housing. Similarly, socio-demographic transition processes ongoing in many countries will increase the number of independent households and again increase demand for housing. Additional housing, however, requires financing—as house prices are often a multiple of annual income—and mortgage finance systems in many developing countries currently do not satisfy the housing needs of these societies.