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June 25, 2021

Central Bank Research Hub

Price discrimination and mortgage choice

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Originally published on by Bank of International Settlements . Link to original report

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.

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Bank of England Working Papers by Jamie Coen, Anil Kashyap and May Rostom

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