Price Discrimination and Mortgage Choice
Jamie Coen1, Anil Kashyap2, May Rostom3
1Imperial College London; 2University of Chicago Booth School of Business; 3Bank of England
We characterise 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.