Price discrimination and mortgage choice
55 Pages Posted: 7 Jul 2021
Date Written: June 25, 2021
We characterise the large number of mortgage offers for which people qualify. Almost no one picks the cheapest option, nonetheless the one selected is not usually much more expensive. A few borrowers make very expensive choices. These big mistakes 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 mistake-prone. The dispersion in the mortgage menu is consistent with banks attempting to price discriminate for some borrowers who might pick poorly while competing for others who might shop more effectively.
Keywords: Price discrimination, consumer choice, mortgages
JEL Classification: G21, G51, G53, D12
Suggested Citation: Suggested Citation