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Price discrimination and mortgage choice

Author

Listed:
  • Coen, Jamie

    (London School of Economics)

  • Kashyap, Anil

    (University of Chicago)

  • Rostom, May

    (Bank of England)

Abstract

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.

Suggested Citation

  • Coen, Jamie & Kashyap, Anil & Rostom, May, 2021. "Price discrimination and mortgage choice," Bank of England working papers 926, Bank of England.
    • Handle: RePEc:boe:boeewp:0926
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    References listed on IDEAS

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    Cited by:

    1. Myśliwski, Mateusz & Rostom, May, 2022. "Value of information, search, and competition in the UK mortgage market," Bank of England working papers 967, Bank of England.
    2. Chung, Sol & Agnew, Julie & Bateman, Hazel & Eckert, Christine & Liu, Junhao & Thorp, Susan, 2024. "The impact of mortgage broker use on borrower confusion and preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 229-247.
    3. Zachary Bethune & Joaquín Saldain & Eric R. Young, 2024. "Consumer Credit Regulation and Lender Market Power," Staff Working Papers 24-36, Bank of Canada.

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    More about this item

    Keywords

    Price discrimination; consumer choice; mortgages;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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