Incentives Information and Efficiency in the UK Mortgage Market

This paper analyses the choices made by households in the UK about mortgages. It considers whether there might be forms of market failure that prevent the structure of mortgage debt better reflecting the underlying preferences of households. UK households lie at one end of a spectrum of the degree of uncertainty over the nominal payments due on mortgage debt. There are several different hypotheses for the type of mortgages households choose. Some are consistent with an efficient market, others not. The paper looks at alternative explanations for the behaviour of UK households and assesses which are consistent with the evidence.