Mortgage Market Buffers: How Household Savings and Bank Capital Shape Housing Credit Supply

We examine how monetary policy, macroprudential regulation, and household saving behavior interact to shape mortgage credit supply after the Global Financial Crisis. We develop a model in which household deposit flows determine bank funding conditions, whereas capital and liquidity requirements constrain portfolio allocations between reserves and mortgages. The framework highlights a distinct transmission channel: shifts in household saving patterns alter how prudential regulation and interest rate policy affect mortgage lending. Calibrated to pre- and postcrisis balance sheet data, the model shows that stronger deposit inflows mitigate the contractionary effects of tighter capital and liquidity requirements. Counterfactual exercises indicate that, absent the rise in household deposit demand, the postcrisis decline in leverage and mortgage lending would have been substantially larger. Empirically, we document that banks with stronger capital buffers do expand mortgage lending in response to deposit inflows. These results highlight household saving behavior as an important mechanism through which monetary and regulatory conditions are transmitted to housing markets.