| Abstract: |
The purchase of a house or apartment and the related choice of a mortgage
provider and product constitute a pivotal financial decision for many
households. Accordingly, mortgage loans represent the largest proportion of
household debts in most OECD countries and an important proportion of the
retail banking business. Even though homeownership in Switzerland is with a
homeownership rate of 40% remarkably low, the Swiss mortgage market is one of
the largest in the world. This is related to the fact that homeowners can
borrow up to 80% of the value of their property. Also, Swiss property prices
are on average relatively high in comparison to other countries, and they have
been dramatically increasing over the last years, rendering the acquisition of
residential properties even more difficult. According to the Swiss National
Bank, the outstanding volume of the domestic mortgage loans in Switzerland
amounted to 1.07 billion Swiss francs by the end of 20201—accounting for
almost 150% of the country’s nominal GDP—with 75% of bank credits concerning
mortgage loans. In view of these circumstances, the mortgage market in
Switzerland is very attractive and represents a major source of profit for
mortgage loan providers. the otherwise traditionally conservative mortgage
market in Switzerland is gradually manifesting certain dynamics. We observe
the emergence of new players and products. Even though banks rank first as
lenders for real estate purchases—accounting for 95% of the market—they are no
longer the only option for Swiss households. Alternative providers, such as
insurance companies, pension funds and crowdfunding platforms, have been
steadily gaining ground in the market. New or revised market rules, along with
further disruptions are anticipated in the housing and mortgage markets, given
the technological advances, as well as the currently notably low interest rate
environment—conditions that are expected to encourage further market
penetration. The hitherto reserved role of mortgage brokers also seems to be
changing, and an increasing number of households rely on corresponding service
providers, whose offer clearly increases market transparency. Interestingly,
we also observe differences in particular with respect to the role of mortgage
brokers between the German- and French-speaking part of Switzerland. The
language regions are related to existing cultural differences, which are also
reflected in these financial choices. These facts lead to the conclusion that
Switzerland is a very interesting market to study the mortgage choice behavior
of private households.Main research questions, data and methodologyHow do
households choose their mortgage supplier? How is this decision related to
their creditworthiness and the value of their property? What sociodemographic
characteristics of the households and geographic factors come into play? How
does financial literacy and attitudes such as risk aversion affect mortgage
decision-making? Which households get credit from their first-best mortgage
provider, and which ones shop around? Given the nature of the credit
allocation problem, that is characterized by asymmetric information, do we
observe a selection process with potentially harmful consequences for the
economy as a whole? Taking into consideration (i) the importance of mortgage
decisions for the households, (ii) the high relevance of the mortgage business
for retail banks in Switzerland, and (iii) the dynamic market environment with
the new supply possibilities and the expected intensification of the
competition among the mortgage providers, it is important to have a good
understanding of the mortgage choice behavior of the borrowers. The purpose of
our study is to understand the mortgage choice behavior of private households
as function of the sociodemographic profile, their level of financial literacy
and their degree of risk aversion. Our results will be based on a large-scale
and unique online survey with 1’000 respondents from the German- and
French-speaking part of Switzerland. We will use a regression framework to
analyze the mortgage provider choice of private households in Switzerland. The
expected results will provide new insights about the preferences of households
with respect to the different mortgage providers as a function of
household-specific, institutional and market-specific characteristics. The
insights will not only be interesting from an academic point of view, but they
are also addressed to practitioners who are able to better understand the
changing market environment in order to optimize their mortgage offer.
Finally, the regulatory authorities, which are keeping a close eye on the
mortgage market, especially nowadays with the existing fears of inflation,
will be able to draw interesting conclusions from the results. |