Mortgage product diversity: responding to consumer demand or protecting lender profit? An asymmetric panel analysis

This article explores determinants of mortgage product diversity for owner-occupied and investment loans in the Australian housing mortgage market. From 2001 to 2012, 65 lenders introduced 1220 mortgage products in Australia. We examine whether the product proliferation was a result of consumer demand or a response to pressure to lower lending rates. We find that consumer demand for mortgages does not have a significant relationship with the number of mortgage products, but that decreases in the policy interest rate are highly significant as an explanatory variable for product proliferation. Such behaviour is consistent with information obfuscation, reducing the ease with which consumers can compare lending rates. Further, the relationship between mortgage products offered and the policy interest rate is asymmetric: decreases in the cash rate are associated with increased mortgage products offered, but increases in the cash rate have a more muted effect on decreasing the number of products.