When Discounted Rates End: The Costs of Taking Action in the Mortgage Market

Adiya Belgibayeva; Teresa Bono; Philippe Bracke; Nuno Clara; João F. Cocco; Tommaso Majer

doi:10.1093/rfs/hhaf098

When Discounted Rates End: The Costs of Taking Action in the Mortgage Market

Adiya Belgibayeva¹; Teresa Bono¹; Philippe Bracke²; Nuno Clara³; João F. Cocco⁴; Tommaso Majer¹

¹ Financial Conduct Authority · ² Bank of England · ³ Duke University · ⁴ London Business School, United Kingdom, and CEPR

Review of Financial Studies 2026

We combine administrative data with a life cycle structural model that exploits the unique features of the U.K. mortgage market to analyze the sources of inaction and to estimate borrowers’ nonpecuniary remortgaging costs. The utility costs needed to generate a given level of inaction depend on monetary gains from remortgaging and on the importance of those monetary gains for agents, which in turn depend on the (endogenously determined) marginal utility of consumption. The model results reveal significant nonpecuniary costs of action that, when measured as a proportion of borrower income, are larger for the young and for lower-income households.

DOI: 10.1093/rfs/hhaf098
Volume: 39 (6)
Pages: 1700-1750
Language: en
Export: BibTeX
Sources: crossref openalex