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Birds of a Feather Indebted Together — Solutions to the Information Problem in the Case of Mortgage Loans

Author

Listed:
  • à kos Aczél

    (Magyar Nemzeti Bank (Central Bank of Hungary))

  • Lajos Tamás Szabó

    (Magyar Nemzeti Bank (Central Bank of Hungary))

Abstract

We examine peer effects in mortgage borrowing decisions. We find that having financially literate colleagues improves the borrowing decisions of financially less literate co†workers. Interest rates on the mortgage loans of these co†workers are significantly lower than for similar employees, whose peers have lower financial literacy. The magnitude of the effect is economically significant, amounting to roughly 4 to 5 monthly instalments until maturity. The results are heterogeneous: advice is more valuable for borrowers with low mathematical skills, and the peer effect is considerably higher in districts, where competition is weaker among banks. We also find that introducing a standardised loan product can offset the impact of the peer effect by making the decision problem of borrowers less complex.

Suggested Citation

  • à kos Aczél & Lajos Tamás Szabó, 2025. "Birds of a Feather Indebted Together — Solutions to the Information Problem in the Case of Mortgage Loans," MNB Working Papers 2025/3, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2025/3
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    Keywords

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    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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