Professors from CATÓLICA-LISBON receive international award for research work on mortgage versus rental

Monday, December 4, 2017 - 15:49

Nelson Camanho and Daniel Fernandes, professors at the Catolica Lisbon School of Business and Economics, were honoured by the Association for

Consumer Research with the Nicosia Award for Best Paper for their research that resulted in the paper “The mortgage illusion”.
 
This research demonstrates that a property purchase decision is influenced by the comparison between the monthly value of the rental before the purchase and the monthly mortgage payment. Consumers prefer to buy a home when the value of the monthly instalment is less than the value of the rental, allowing themselves to be carried away by what the two researchers call "the mortgage illusion." This happens because the monthly instalment of the home reflects not only mortgage interest but mainly the duration of the mortgage, which ultimately leads to skewed decisions. When the mortgage term is long enough for the monthly instalment to be less than a monthly rental, many consumers decide to buy and potentially go into a bad deal.
 
"Potential home buyers tend to overestimate the comparison between monthly rental costs and how much they would spend monthly if they decided to buy a home. We have proved that a considerable number of American buyers pay a monthly home mortgage that is roughly the same amount as what they used to pay as rental".
 
The Awards for the Association for Consumer Research acknowledge the work of individuals who have contributed to scientific knowledge in the area of consumer behaviour. One of these awards is the Nicosia Award, granted since 1998 to the authors of the best paper presented at this association's annual conference.

 

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