A very advantageous borrowing rate is a treasure you don't want to lose. If it doesn't follow the borrower when they move, then moving costs that treasure. So you'd rather stay. This is the lock-in effect: a past advantage that freezes the present.
1 What is the lock-in effect?
Staying put to keep a low rate.
Definition
Forgoing a move to keep a low rate
The lock-in effect describes the situation where a borrower forgoes moving in order to keep a fixed-rate loan taken out well below the market rate. Since a new home would require a new, dearer loan, the cost of leaving becomes prohibitive. It appears above all where the loan is long-term fixed-rate and not transferable from one home to another.
2 The mechanism
An opportunity cost, not a debt.
Why you stay
①
The rate gap. The further the market rate runs above the borrower's, the costlier leaving is in future payments.
②
The rate tied to the home. If the loan doesn't transfer, moving forces you to pay it off and take a new one at today's price.
③
The rational calculation. Each person, individually, is right to stay; the sum of these choices freezes the whole market.
So it is not the weight of the debt that holds you, but the advantage you would lose by leaving. An invisible opportunity cost, yet a very real one.
3 Market and prices
When supply dries up.
The consequence
Scarce supply, propped-up prices
When owners stop selling, the supply of homes grows scarce and transactions collapse. A counter-intuitive effect can then appear: a rate hike, meant to cool prices, can instead support them, because it cuts supply even more than it discourages demand. The magnitude depends on local market tightness.
4 Monetary policy transmission
The credit channel that clogs.
The hidden gear
Why the central bank loses a lever
A central bank raises rates to slow spending, partly through the cost of credit. But in a fixed-rate market, the already-committed borrower sees no change in their payment: the tightening doesn't reach them. The mortgage-credit channel clogs, and the hike freezes the market instead of slowing consumption. Hence an asymmetry: the hike locks in, only a rate cut can free.
Fixed versus variable
①
Fixed rate (US, France). The borrower is insulated from hikes; slow transmission, strong lock-in.
②
Variable or short rate (UK, Australia). The hike quickly reaches the payment; fast transmission, little lock-in.
③
The lesson. A country's loan structure decides how forcefully monetary policy reaches households.
5 Takeaways
What to remember.
✓
The lock-in effect: you keep a home so as not to lose an advantageous, non-transferable rate.
✓
The cause: an opportunity cost, the gap between the old rate and the market's.
✓
Consequences: scarce supply, frozen transactions, prices sometimes propped up by the very rise in rates.
✓
It blunts monetary policy: the protected borrower doesn't feel the tightening.
This notion sheds light on an analysis
First published: 15 June 2026