The relationship between consumer characteristics and mortgage preferences

Maria Hullgren and Inga‐Lill Söderberg

International Journal of Housing Markets and Analysis, 2013, vol. 6, issue 2, 209-230

Abstract: Purpose - The purpose of this paper is to investigate consumer characteristics that influence Swedish consumers' mortgage rate decisions, such as the choice between an adjustable rate mortgage (ARM) and a fixed rate mortgage (FRM). Design/methodology/approach - Data were collected in a randomised survey of the Swedish population in 2010. Through binary logistic regression, the effects of education, income and risk aversion on household mortgage decisions are investigated. In addition, consumers' financial literacy and self‐reported ability to handle sudden mortgage rate increases are examined. A test of gender effects is also performed. Findings - The results show that a lower level of education, lower income, lower financial literacy, and trouble handling interest rate increases influence Swedish consumers to choose ARMs. Gender does not significantly affect the overall results. However, a gender‐divided regression shows that age, a low level of education and risk averseness significantly affect men's mortgage choices, whereas income, trouble handling interest rate increases and low financial literacy significantly affect women's mortgage choices. Practical implications - The most vulnerable Swedish consumers choose FRMs to a greater extent and, thereby, make future expenditures more predictable for the single household by reducing liquidity risks. Originality/value - This paper tests a number of characteristics in predicting consumers' mortgage choices, emphasises the importance of loan takers' ability to cope with sudden mortgage rate increases, highlights the importance of financial literacy in understanding consumers' financial choices and elucidates the Swedish case.

Keywords: Mortgage; FRM; ARM; Personal finance; Sweden; Household (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijhmap:v:6:y:2013:i:2:p:209-230

DOI: 10.1108/IJHMA-01-2012-0004

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