1 Borrower characteristics and mortgage choice in Sweden Maria Hullgren & Inga-Lill Söderberg Aim of Paper: 1.To investigate driving forces behind mortgage choice among homeowners in Sweden. 2.Secondary: To make a contribution to international comparisons.

2 Background: Households more financially vulnerable due to: Higher costs for dwellings Increased levels of debt-to-income Higher share of adjustable-rate mortgages (ARMs) a potential source of economic and housing market instability. Uncertainty about housing prices and mortgage rates because of recent financial crisis.

3 Earlier findings about mortgage choice: (and our hypotheses) Loan-to value ratio (LTV) High LTVs, more Fixed rate (FRM) Income Higher income, less FRMs Education Lower education, more FRM Risk tolerance Lower tolerance, more FRM Restricted resources, less resources, more FRM Age (Contradictive findings) higher age, less FRM

4 Additional variables tested Earlier mortgage experience The media Bank advisor Number of mortgages with the same collateral These variables hypothesised as non-directional

5 Data, sampling- & analyzing method Collected March-May 2012 through a survey that was distributed among a randomised representative sample of Swedish citizens. Survey performed by an independent market research institute. Sample: Only respondents who had made an active decision concerning their mortgages in the three months before the survey. A limit was set at 500 individuals owing to survey costs. A 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.

6 Results

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8 Conclusions Most variables in line with hypotheses. Contrary to expectations based on earlier findings, age and low financial risk tolerance have a negative effect on the choice of FRMs. Age: The risk premium paid for an FRM is considered low by the baby-boomers, that have experienced much higher mortgage rates during earlier decades? Low financial risk tolerance: ARMs were marginally less expensive than FRMs and these households were perhaps not prepared to pay the risk premium inherent in FRMs. The most vulnerable Swedish consumers seem to choose FRMs to a greater extent than the less vulnerable, thus avoiding liquidity risks.

9 Questions for future studies Influence of the media has negative effect on choice of FRM. Influence of a bank advisor has positive effect on choice of FRM Both the media and bank advisors have the potential to play influential roles in a broader policymaking perspective. Therefore, it is important to follow up more extensively the impact of these factors on consumers’ mortgage choices.