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Ebook: On the rationality of borrowers' behaviour
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On the Rationality of Borrowers’ Behaviour was prompted by two observations: first, mortgage take-up amongst homeowners was fairly divergent across Europe, and second, the fact that this was seen by academic researchers as well as policymakers and financial authorities as an indication of fundamental differences in the risk attitudes of homeowners. Although the time and depth of the cycles differed from one European country to another, mortgage markets have grown in size, expanded in product variation and improved borrowers’ accessibility to mortgage credit. However, this expanding range of mortgage opportunities significantly increases the search and information costs for a borrower, making it harder for him to find the mortgage with the most favourable cost-risk trade-off. Nonetheless, the research reveals that homeowners are still acting as rational customers, i.e. willing and able to choose the optimal mortgage. Meanwhile, the cross-country analysis in this study highlights the role of the institutions, household characteristics, and the structure of national mortgage markets as key elements in shaping the optimal mortgage for homeowners.
The ambition to write someday a PhD slumbered for years while I was working at the Dutch Ministry of Housing, Spatial Planning and the Environment. When the opportunity eventually presented itself, the first of many challenges to come was the angle of the research. The theme – the risks of homeownership – was the starting point, but not very precise; not surprisingly it took some time to figure it all out.
This PhD thesis on ‘borrowers’ behaviour across countries' was prompted by two observations: first, mortgage take-up amongst homeowners was fairly divergent across Europe, and second, that this was seen by academic researchers as well as policymakers and financial authorities as an indication of fundamental differences in the risk attitudes of homeowners. That conclusion seemed at odds with numerous (international comparative) studies, which indicated, that the outcome on a macro level – in this case mortgage take-up – is not necessarily a good indicator of the underlying decision-making process. My research results support the latter view.
Six years later, time was up, meaning that the PhD had to be finished. It took a while to accept that fact; for the same reasons as formulated by Sidney Weintraub in the early 1930s: “I continually hear things …which leaves me in a muddle, things that I recognize should come in, but which mean that I've got to change my own attack somewhat. But remind me that a doctorate hinges on finishing it. Refinements can come later. Yet, I don't relish working when I'm not certain in my own mind.” (Cited by Weintraub, 2002). Therefore, even when this study is finished, I comfort myself with the thought that this thesis is not the end, just an intermediate phase, and a prelude to even more exciting things.
It is traditional in the preface to a PhD thesis to say a word of thanks to many people who have contributed over the years to the research. Many did – in one way or another – but most of them will remain anonymous. Here, I would just like to thank both my (co-)promoters (Peter Boelhouwer, Hugo Priemus and Marja Elsinga), whose critical comments on earlier drafts improved the final version significantly. My wife, Corinne, who kept me grounded when I was euphoric and vice versa. Finally, my son Ernst, who retyped many tables when Gates' brainchild broke down once again (any remaining errors are, of course, mine!).
Peter Neuteboom, Monday, 7 July 2008