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Borrower characteristics and mortgage choice in Sweden
KTH, School of Architecture and the Built Environment (ABE), Real Estate and Construction Management, Building and Real Estate Economics.ORCID iD: /0000-0002-4877-938
KTH, School of Architecture and the Built Environment (ABE), Centres, Centre for Banking and Finance, Cefin.
(English)Article in journal (Other academic) Submitted
Abstract [en]

This article is an attempt to answer calls for more knowledge about the effect of consumer characteristics on mortgage choice and, in light of the U.S. mortgage crisis, calls for more information on local mortgage market practices so as to find examples that can serve as best practices for policymakers. A complementary aim is to compare the results with those reported in other countries. In addition to exploring much-studied background variables, such as age, income, LTV ratio and education, the rated importance of previous experiences with mortgages and the influence of the media and bank advisors are examined.


Data and methods

The data used in this study were collected through a survey, distributed among a randomised representative sample of Swedish citizens by an independent market research institute, TNS/SIFO International, to its Web panel with a representative sample of the Swedish population. To control for changes in interest rates and other external factors affecting contract factors, a time limit was set, and the survey was conducted from 27 March to 4 May 2012. Only respondents who had made an active decision concerning their mortgages in the three months leading up to their participation in the survey were to be part of the sample. Owing to survey costs, a limit was set at approximately 500 individuals.

The survey was distributed to 7,738 Web panelists, of whom 2,927 answered the survey. Of the 2,927 respondents, 2,426 were screened out because they did not comply with the survey inclusion criteria. Thus, 501 respondents were included in the study. Binary logistic regression was performed to assess the correlation of a number of contract factors and consumer characteristics and consumer perceptions of factors influencing mortgage choice of mostly FRMs. The results of this regression were compared to a set of hypotheses.



All nine variables in the proposed model made statistically significant contributions. Five of these variables—higher age, LTV ratio, income, education and risk aversion—are positively correlated to the choice of FRMs. In these five aspects, the Swedish mortgage market also seems to be driven by the same factors as in other mortgage markets.

Contrary to what was hypothesised, households reporting low financial risk tolerance were less inclined to choose FRMs. This finding might be attributed to ARMs being marginally less expensive than FRMs during the investigated time period and to these households being unprepared to pay the risk premium inherent in FRMs.

The findings also show that the following factors have an impact on mortgage choice: consumers’ personal experiences in home buying, the influence of the media and the influence of bank advisors. The first two factors have a negative effect on the choice of FRMs, whereas the last factor is positively correlated to the choice of FRMs.

The paper suggests that in addition to the factors that are commonly investigated in connection to mortgage choice, there are other factors such as previous mortgage experience and the roles of the media and financial advisors that influence the choice between fixed and adjustable mortgages.

Keyword [en]
mortgage choice, consumer, risk tolerance, Sweden, ARM, FRM
National Category
Economics and Business
URN: urn:nbn:se:kth:diva-129022OAI: diva2:649243

QS 2013

Available from: 2013-09-17 Created: 2013-09-17 Last updated: 2013-09-24Bibliographically approved
In thesis
1. Essays on mortgage rate choice in Sweden
Open this publication in new window or tab >>Essays on mortgage rate choice in Sweden
2013 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

Buying a home is for many households the financially most important purchase they will make. The choice of mortgage instrument is also of importance in that it will determine a household’s financial exposure. In the aftermath of the 2007–2008 financial crisis in the United States, the potential consequences for borrowers and the financial system became apparent in many countries. Even though the choice of mortgage is described as a very complex transaction, international studies have found that borrowers are less than optimally knowledgeable about the possible future consequences of their choice. This lack of knowledge has raised concern and prompted calls for more research on differences between mortgage markets and factors affecting consumers’ mortgage choice.

This thesis answers this call by empirically exploring the Swedish case and by offering an expanded knowledge about factors that influence borrowers’ mortgage choice. The thesis consists of five papers, and, in most cases, interviews and questionnaires were used to collect the data, depending on which type of data collection was considered best suited to serve the purpose of the individual paper. A close reading approach was also applied in one of the papers.

The findings indicate that in a Swedish setting, there are factors affecting borrowers’ mortgage choice that have not previously been fully explored in the literature: the media and bank advisors. During the period studied, a negative correlation existed between the media and the choice of fixed rate mortgages, whereas a positive correlation existed between bank advisors and the choice of fixed rate mortgages. The study on advice given by a bank advisor also shows the advocacy of a mix of fixed and adjustable mortgage rates. Further findings corroborate those of earlier international studies, such as the impact of income, education, financial literacy and loan-to-value ratios on mortgage choice.

A general conclusion that can be drawn from the findings in the Swedish context is that the most financially vulnerable borrowers—those with lower income, lower education and/or higher loan-to-value ratios—are more likely to choose higher levels of fixed rate mortgages (or lower levels of adjustable rate mortgages). In doing so, they avoid exposing themselves to liquidity problems, which can be caused by increasing mortgage rates, and make future mortgage expenditures more predictable. These findings contradict much of the concern that both scholars and financial authorities have expressed about households’ choice of mortgage instrument. Hence, these findings are of importance not only to research on mortgage choice but also to policymakers and the financial industry.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2013. 38 p.
, Trita-FOB-PHD, 2013:2
Mortgage choice, Swedish mortgage market, consumer characteristics, borrower perceptions, financial advice, housing co-operatives
National Category
Economics and Business
urn:nbn:se:kth:diva-129030 (URN)978-91-85783-33-5 (ISBN)
Public defence
2013-10-14, F 3, Lindstedtsvägen 26, KTH, Stockholm, 13:00 (English)

QC 20130924

Available from: 2013-09-24 Created: 2013-09-17 Last updated: 2013-09-24Bibliographically approved

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