Template-Type: ReDIF-Paper 1.0

Author-Name: Ákos Aczél
Author-X-Name-First: Ákos	
Author-X-Name-Last: Aczél
Author-Email: aczela@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (Central Bank of Hungary)


Author-Name: Lajos Tamás Szabó
Author-X-Name-First: Lajos Tamás	
Author-X-Name-Last: Szabó
Author-Email: szabolaj@mnb.hu
Author-Workplace-Name: Magyar Nemzeti Bank (Central Bank of Hungary)

Title: Birds of a Feather Indebted Together — Solutions to the Information Problem in the Case of Mortgage Loans

Abstract: We examine peer effects in mortgage borrowing decisions. We find that having financially literate colleagues improves the borrowing decisions of financially less literate co‐workers. Interest rates on the mortgage loans of these co‐workers are significantly lower than for similar employees, whose peers have lower financial literacy. The magnitude of the effect is economically significant, amounting to roughly 4 to 5 monthly instalments until maturity. The results are heterogeneous: advice is more valuable for borrowers with low mathematical skills, and the peer effect is considerably higher in districts, where competition is weaker among banks. We also find that introducing a standardised loan product can offset the impact of the peer effect by making the decision problem of borrowers less complex.

Length: 50 pages
Creation-Date: 2025
File-URL: https://www.mnb.hu/letoltes/mnb-wp-2025-3-final-1.pdf
File-Format: Application/pdf

Number: 2025/3
Classification-JEL: J24, G21, G41
Keywords: peer effects, skills, borrowing decisions, mortgage loan, standardised loan product
Handle: RePEc:mnb:wpaper:2025/3