Mateusz Mysliwski - Website
Primary: Empirical Industrial Organisation, Applied Microeconomics
Secondary: Structural Econometrics, Urban Economics
Paper title - 'Value of Information and the Impact of Mortgage Intermediaries on Lender Competition and Households' Financial Positions'
Abstract - We formulate a structural model of search with lender and borrower heterogeneity to estimate the value of information provided by mortgage intermediaries (brokers) in the UK. Using administrative data on all mortgages originated in 2016 and 2017, we nonparametrically estimate the distributions of search cost and banks’ costs of providing the loan, under the assumption that brokers are used by borrowers with higher costs of searching for mortgages directly. Our results show that search costs can substantially vary by demographic groups and brokers’ presence exerts a negative pressure on lenders’ margins. To estimate how intermediation affects consumer surplus, we consider a counterfactual where broker advice is not available, finding that brokers’ presence reduces average monthly costs by 33.7% and search expenditure by 16.5%, though the results vary substantially by borrower and loan characteristics. Remarkably, average value of information provided by brokers is positive only for borrowers who take up mortgages with 2-year fixed term deals. In a second counterfactual we look at the effects of market centralization, finding that such a regulation would halve lenders’ markups and lower monthly costs of an average mortgage by 6.41%.
- Lars Nesheim
- Aureo de Paula
- Sorawoot Srisuma (University of Surrey)