Default risk of wage-indexed payment mortgage in Turkey

Erol I., Patel K.

JOURNAL OF HOUSING ECONOMICS, vol.14, no.3, pp.271-293, 2005 (Peer-Reviewed Journal) identifier identifier

  • Publication Type: Article / Article
  • Volume: 14 Issue: 3
  • Publication Date: 2005
  • Doi Number: 10.1016/j.jhc.2005.07.004
  • Journal Indexes: Social Sciences Citation Index, Scopus
  • Page Numbers: pp.271-293


This paper analyses default risk of wage-indexed payment mortgage (WIPM) in Turkey in comparison with other standard mortgage contracts originated in high inflationary economies. Emlak Bank launched WIPM linked to Civil Service employees' wage (CSW) index during high inflationary period of late 1990s. Concurrently, the government introduced a policy linking CSW index to semi-annual expected rate of inflation in an attempt to facilitate housing finance for the fastest growing sector of the population. We find that WIPM protects borrowers against risk of high payment shocks whereas nominal contracts such as ARM and DIM would have resulted in high mortgage defaults. (c) 2005 Elsevier Inc. All rights reserved.