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.