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Official advice improves mortgage-holders’ perceptions of switching: experimental evidence

Published online by Cambridge University Press:  06 January 2020

SHANE TIMMONS Open the ORCID record for SHANE TIMMONS [Opens in a new window] ,
MARTINA BARJAKOVÁ ,
TERENCE J. MCELVANEY  and
PETER D. LUNN
SHANE TIMMONS*
Affiliation:
Economic and Social Research Institute (ESRI), Whitaker Square, Sir John Rogerson's Quay, Dublin, Ireland
MARTINA BARJAKOVÁ
Affiliation:
Economic and Social Research Institute (ESRI), Whitaker Square, Sir John Rogerson's Quay, Dublin, Ireland
TERENCE J. MCELVANEY
Affiliation:
Queen Mary University of London, Mile End Rd, London, UK
PETER D. LUNN
Affiliation:
Economic and Social Research Institute (ESRI), Whitaker Square, Sir John Rogerson's Quay, Dublin, Ireland Department of Economics, Trinity College Dublin, College Green, Dublin, Ireland
*
*Correspondence to: Economic and Social Research Institute (ESRI), Whitaker Square, Sir John Rogerson's Quay, Dublin 2, Ireland. Email: [email protected]
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Abstract

Encouraging consumers to switch to lower-rate mortgages is important both for the individual consumer's finances and for functioning competitive markets, but switching rates are low. Given the complexity of mortgages, one potential regulatory intervention that may increase switching rates is to provide independent advice on how to select good mortgage products and how to navigate the switching process. Working with a government consumer protection agency, we conducted an experiment with mortgage-holders to test whether such advice alters perceptions of switching. The experiment tested how the attributes of the offer, perceptions about the switching process, individual feelings of competence and comprehension of the product affect willingness to switch to better offers, both before and after reading the official advice. The advice made consumers more sensitive to interest rate decreases, especially over longer terms. It also increased consumers’ confidence in their ability to select good offers. Overall, the findings imply that advice from policy-makers can change perceptions and increase switching rates. Moreover, the experiment demonstrates how lab studies can contribute to behaviourally informed policy development.

Type
Article
Information
Behavioural Public Policy , Volume 6 , Issue 4 , October 2022 , pp. 625 - 653
Copyright
Copyright © Cambridge University Press 2020

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