Interest rate changes and borrower search behavior

M. Lukas and M. Nöth

Journal of Economic Behavior & Organization, 2019, vol. 163, issue C, 172-189

Abstract: Borrower search behavior regarding an outside lender is correlated with interest rate changes. The results of a survey among German households reveal that surprisingly few mortgage borrowers switch to an outside lender when refinancing in a period of declining interest rates although non-switching borrowers face significantly higher interest rates. A laboratory experiment which adds the case of rising interest rates reveals that borrowers’ efforts to screen offers by outside lenders are significantly higher when interest rates rise than when they fall. This behavior cannot be reconciled with alternative explanations. Overall, several billion € p.a. are transferred to lenders.

Keywords: Household finance; Banking; Relationship lending; Mortgages; Experimental finance (search for similar items in EconPapers)
JEL-codes: C91 D12 D14 G21 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:163:y:2019:i:c:p:172-189

DOI: 10.1016/j.jebo.2019.03.020

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