Price Discrimination and Mortgage Choice
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.
We thank João Cocco, Patrick Coen, Kris Gerardi, Robert Hall, John Krainer, Guido Menzio, David Miles, Daniel Paravisini, Morten Ravn, Francesc Rodriguez-Tous, Maximilian Schleritzko, Sergio Vicente, Erkki Vihriälä and Tomasz Wieladek for helpful conversations. We thank David Bradnum, Chiranjit Chakraborty, Alastair Firrell, and Simon Pittaway for in-depth conversations and help regarding the data. We thank Tom Cui for outstanding research assistance and seminar participants at the Bank of England, Bank of Lithuania, Chicago Booth, the Federal Reserve Bank of Dallas, the FDIC, the London School of Economics, ASSA 2023, Emerging Scholars in Banking and Finance Conference 2023, Fed Day Ahead Conference 2023, Lapland Household Finance Summit 2023, NBER SI Household Finance 2022 and New Zealand Finance Meeting 2023 for comments. Kashyap thanks the Center for Research on Securities Prices and the Initiative on Global Markets at the University of Chicago Booth School of Business as well as the National Science Foundation for a grant administered by the National Bureau of Economic Research for research support. All errors are our own. Any views expressed are solely those of the author(s) and so cannot be taken to represent those of the Bank of England, nor to state Bank of England policy, nor to represent the views of the National Bureau of Economic Research, nor those of other institutions with which the authors are affiliated. This paper should therefore not be reported as representing the views of the Bank of England or members of the Monetary Policy Committee, Financial Policy Committee or Prudential Regulation Committee.
Jamie Coen acknowledges a secondary affiliation with the Bank of England.Anil K Kashyap
Anil Kashyap was a member of the Financial Policy of the Bank of England from 2016 to 2022. His other information on Non-Teaching Compensated activities from 2017 to 2022 are shown below and his CV shows various unpaid affiliations.
Einaudi Institute of Economics and Finance, 2007 – 2018
Federal Reserve Bank of Chicago, 1991—present
European Central Bank, 2018 -- 2021
“Monetary Policy in the Next Recession?” (with Stephen G. Cecchetti, Michael E. Feroli, Catherine L. Mann, and Kermit Schoenholtz) prepared for U.S. Monetary Policy Forum, Initiative on Global Markets, University of Chicago Booth School of Business, 2020.
“Deflating Inflation Expectations: The Implications of Inflation’s Simple Dynamics”
(with Stephen G. Cecchetti, Michael E. Feroli, Peter Hooper and Kermit L. Schoenholtz)
prepared for U.S. Monetary Policy Forum, Initiative on Global Markets, University of
Chicago Booth School of Business, 2017.