Working Paper: NBER ID: w31652
Authors: Jamie Coen; Anil K. Kashyap; May Rostom
Abstract: We characterize the large number of mortgage offers for which people qualify in the United Kingdom. Very few pick the cheapest option, nonetheless the one selected is not usually noticeably more expensive. A few borrowers make very expensive choices. These are most common when the menu they face has many expensive options, and are most likely for high loan-to-value and loan-to-income borrowers. Young people and first-time buyers are more prone to making expensive choices. The dispersion in the mortgage menu is consistent with banks price discriminating for borrowers who might pick poorly, while competing for others who shop more effectively.
Keywords: No keywords provided
JEL Codes: D12; G21; G51; G53
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| younger borrowers (G51) | select expensive mortgage options (G51) |
| first-time buyers (R21) | select expensive mortgage options (G51) |
| price dispersion in mortgage menus (E30) | price discrimination by banks (G21) |
| large price dispersion (D49) | borrowers borrowing large amounts relative to income and house value (G51) |