St. Petersburg University
Graduate School of Management
Master in Management Program
CONSUMER BEHAVIOR IN MORTGAGE MARKET:
EVIDENCE FROM RUSSIA
Master’s Thesis by the 2nd year student
Concentration — MIM, General Track
Associated Professor Kiran V. Zhukova
Doctor of Science, Professor Ari Jantunen
Title of thesis:
Consumer Behavior in Mortgage Market: Evidence from Russia
Graduate School of Management (St.-P. State University)
School of Business (LUT)
Master in Management
Strategy, Innovation and Sustainability
Saint-Petersburg State University / Lappeenranta University of
67 pages, 14 figures, 10 tables, 1 appendix
Asc. Prof. Kiran V. Zhukova (GSOM)
Prof. Ari Jantunen (LUT)
Consumer behavior, mortgage market, crisis, Russia
The purpose of this master thesis is to identify behavioral patterns of potential borrower
in mortgage market in crisis conditions and to link mortgage products available on Russian
market with potential borrowers segments in dependence of detected patterns. Empirical results
achieved through 172 answers of potential borrowers allowed to classify them in four groups in
dependence of respondent perceptions about mortgage and future. On the basis of literature
review and currently state of Russian mortgage market particular mortgage products were
suggested to each of four clusters of potential borrowers. Then, recommendations for Russian
banks how to apply received results were developed. Current master thesis has strong both
academic and managerial contributions. It it adds significant value to existing consumer behavior
studies; and provides practical recommendations for Russian banks how to understand mortgage
borrower behavior in order to increase trust to mortgage among population.
Симбарская Анна Игоревна
Consumer behavior in Mortgage market: Evidence from Russia
Высшая Школа Менеджмента (СПБГУ)
Школа Бизнеса (ЛТУ)
Стратегия, инновации и устойчивое развитие
Санкт-Петербургский Го сударственный Университет /
Лаппеенрантский Технологический Университет
67 Стр., 14 рис., 10 табл., 1 приложение
Жукова К.В., доцент
Ari Jantunen, профессор (ЛТУ)
Поведение потребителя, рынок ипотечного кредитования, кризис,
Цель данной магистерской работы заключается в определении особенностей
поведения потенциального заемщика на рынке ипотечного
в условиях кризиса и
выявлении ипотечных продуктов, соответствующих тому или иному сегменту заемщиков.
Эмпирические результаты, достигнутые в результате опроса 172 потенциальных
заемщиков, позволили классифицировать потенциальных заемщиков на четыре группы в
зависимости от представлений респондентов об ипотеке и будущем. На основании обзора
литературы и состояния российского ипотечного рынка каждому из четырех кластеров
были предложены определенные ипотечные продукты. Данная работа вносит весомый
вклад в существующие исследования о поведении потребителя. Также работа имеет
практическую значимость, поскольку предоставляет практические рекомендации для
Российских банков, нацеленные на повышение доверия к ипотеки среди российского
I would like to express my sincere and deep gratitude to all people who were involved in
the process of this master thesis writing.
Firstly, I would like thank my Russian research supervisor – associate professor Kiran V.
Zhukova for being more than research advisor, unforgiven experience and everyday support.
She did not left me in difficult times and helped me to discover myself a lot.
Secondly, I would like to thank my Finnish supervisor – professor Ari Jantunen for
support and understanding of situation.
Thirdly, I would like to express my gratitude to senior lecturer – Alkanova Olga N. for
finding direction of my research.
Then, I thank my family and friends who made me not give up and finish this master
thesis and were always near to me.
Finally, I would like to thank all GSOM people, who helped me to conduct my survey,
consult me or just support me in this time.
1.1. Research Background and motivation........................................................................ 7
1.2. Research Gaps in existing consumer behavior studies...............................................8
1.3. Research problem, goal, questions and scope............................................................. 9
1.4. Research strategy and organization of study.............................................................10
2. CONSUMER BEHAVIOR THEORETICAL FRAMEWORK....................................... 12
2.1Consumer behavior models overview......................................................................... 12
2.1.1. Factors that affect consumer behavior.............................................................. 18
2.1.2. Consumer decision making process.................................................................. 20
2.2. Consumer behavior in crisis......................................................................................22
2.3. Сonsumer behavior on mortgage market.................................................................. 25
2.4. Relationships between bank and mortgage borrower in Russia................................28
Summary of chapter 2.......................................................................................................... 31
3. METHODOLOGY AND DATA COLLECTION............................................................ 33
3.1. Research Philosophy, research approach and research design..................................33
3.2. Data collection.......................................................................................................... 34
3.2.1. Primary data collection: potential borrower behavioral factors......................34
3.2.2 Secondary data collection on Russian mortgage market..................................34
3.3. Measurement of consumer behavioral variables.......................................................34
3.4. Data Analysis............................................................................................................ 38
3.4.1. Factor analysis of potential borrower perceptions..........................................38
3.4.2 Cluster analysis of potential borrowers............................................................41
Summary of chapter 3.......................................................................................................... 42
4. EMPIRICAL FINDINGS ON CONSUMER BEHAVIOR IN RUSSIAN MORTGAGE
4.1. Research results on potential borrower profiles........................................................44
4.2. Research findings on correspondence of mortgage products to potential borrower
4.2.1 Analysis of mortgage products on Russian mortgage market.......................... 46
4.2.2. Suggested mortgage products for consumer profiles...................................... 52
Summary of chapter 4.......................................................................................................... 55
5. DISCUSSION AND CONCLUSIONS............................................................................56
5.1. Discussion of empirical findings in context of consumer behavior studies..............57
5.2. Theoretical contribution to consumer behavior theory............................................. 59
5.3. Managerial implications of potential borrower profiles for Russian banks..............60
5.4. Limitations and further researches............................................................................ 61
APPENDIX 1. Questionnaire on consumer behavior in mortgage market.........................66
LIST OF FIGURES
Figure 2.1. Decision-making process
Figure 2.2 The Engel-Kollat-Blackwell
Figure 2.3 Nicosia Model17
Figure 2.4 Stimuli-Response Model17
Figure 2.6 Crisis influence on consumer behavior23
Figure 2.7 Stimuli-response model on mortgage market from banking point of view30
Figure 2.8 Consumer behavior on mortgage market theoretical framework32
Figure 3.1 Research Design43
Figure 4.1 Potential borrower profiles44
Figure 4.2 Annuity monthly payments47
Figure 4.3 Differentiated monthly payments48
Figure 4.4 Share of foreign currency mortgage in total volume of mortgage lending in
Figure 4.5 Volume of past-due mortgage debt in foreign currency mortgage in Russia
Figure 4.6 Reverse stimuli-response model56
LIST OF TABLES
Table 3.1 Correlation coefficients38
Table 3.2 KMO and Bartlett’s Test 39
Table 3.3 Rotate component matrix: factor loadings 40
Table 3.4 Reliability Test40
Table 3.5 Final centers of clusters41
Table 3.6 Description of potential borrower profiles……………………………………….…….……………………….…...42
Table 3.7 Scales of cultural, psychological and personal factors 43
Table 4.1 Monthly savings due to lump sum payment/ interest rate option
Table 4.1 Monthly savings due to lump sum payment/ interest rate option over loan periods51
Table 4.3 Mortgage products offered by Russian mortgage leaders banks (2016)…………….........…..…52
1.1. Research Background and motivation
Consumer behavior plays the most significant role on every market as its understanding is
crucial to identify and fulfill needs of customers. Discovering consumer behavior particularities
is a base for effective marketing strategy. Understanding consumer behavior on markets that are
overfilled by products or services with insignificance differences between each other allows
creating a strong competitive advantage (Gilaninia, Taleghani, Aziz, 2013). To such overfilled
markets the banking sector could be referred (Lipowski, 2003). The more risky and uncertain is
a product/service offered by bank the more crucial place take consumer behavioral patterns in
bank performance. Therefore, understanding consumer behavior in mortgage market is an
inherent part of effective bank functioning. Under crisis conditions this issue takes dramatic
character and lead to consumer behavior changes that need to be responded (Pandelica, 2008).
The mortgage lending in Russia is almost the only way to buy own house as Russian
house market is one of the least affordable market for population in the world. However
mortgage market is also characterized by low affordability and need for continuous development.
However borrow beliefs of mortgage lending are negative: high interest rates, long formal
procedures, mistrust to banks, low level banking service (Ibragimova, 2012).
Currently procedures of borrower profiles consideration are too limited as the main focus
of Russian banks is to evaluate solvency of the borrower, applying scoring system of assessment,
based on borrower income and credit history. (Skiba, Loyko, 2012)
However, banks neglect the fact that wrong proposed mortgage product could lead to
borrower frustration or even to borrower bankruptcy. It is also necessary to mention that in
Russiaт financial services are dictated by banks, but is not conscious client decision (Alikperova
Yarasheva, 2015). In its turn, negative experience will significantly affect the borrower
perceptions about loans and may in the future stop them to take other loans from these banks.
Moreover, spreading negative emotions through media, “world of mouth” or other channels will
increase bad beliefs among all population, like snowball.
Therefore banks have great potential and scope to form borrower loyalty. To increase
loyalty among potential borrowers it is necessary to strength strong relationships with bank
through high quality servicing. Thus understanding consumer behavior is a crucial for Russian
banks on mortgage market.
1.2. Research Gaps in existing consumer behavior studies
Consumer behavior on this very market is crucial for Russian banks to understand what
consumers want and to satisfy their needs increasing this way the mortgage volume lending and
the Russian mortgage market development. As Russian mortgage market could be considered as
emerging market but that was built on foreign practices, understanding consumer behavior on
Russian market could have significant contribution to existing theories from cross-cultural point
of view. Moreover, it is actual to consider mortgage consumer behavior in context of financial
crisis. There are plenty of literature that investigates buying behavior on mortgage market, that
try to understand why people chose this or another type of loan choosing and bank selection.
However, there is no investigations what could be consumer profiles in crisis context.
The most important article in the field of consumer behavior is ”The seven sins of
consumer psychology” by Pham M.T. The main aspects that need to be taken into account are
lacks of consumers theories that the author highlights.
The first lack of current consumers studies is that it has a narrow scope. Consumer
behavior includes several steps :
Desire. It defines what the customer wants and needs , what are his
interests and tastes.
Acquisition. This aspect includes the searching process, selection process,
decision making process, willingness to pay etc.
Use/consumption. Here main areas are: storage, sharing, maintenance,
consumption, enjoyment, satisfaction, possession e.t.c
Disposal/divestment includes: discarding, recycling, reusing, replacement.
The point is that consumer behavior theories focus mainly on the acquisition stage, leave
without attention other consumer behavior stages. The author calls in question that this very
stage is the area of business interests. He is sure that businesses want to pay attention the desire
stage to understand what consumers want and need, what motivate them to do this. Most of
academic researches are based on the assumption that consumer wants and needs are given
already, that is at variance with the reality. Also Pham M.T mentions that little attention in
consumer behavior theories is paid to usage and consumption, other ways of acquisition (like
sharing, borrowing, gifting) and last stage of consumer behavior - disposal and divestment.
Next drawback of consumer behavior studies is “narrow lenses”. The author main idea
here is that consumer behavior basis consists of 3 paradigms: cognitive psychology, social
psychology and behavioral decision theory, while other aspects are out of scope. The author uses
a concept “a concentric perspective on consumer behavior theory” that defines areas that
consumer behavior researches mainly focus on. The first is mechanical core that has enough
investigated and embrace attention, memory, inference-making etc. Then comes the affective
layer that include emotional aspects. After affective layout is a motivational layout - consumer
goals and needs. Next is socio-relational background and the last one is cultural context that
includes history, language, economic system particularities. So, the concentric view of consumer
theory considers attentively mechanistic aspects of consumer behavior.
Another serious gap in consumer behavior theory is overgeneralization. This problem
touches researchers as well as readers and reviewers. Researchers like to interpret their results,
achieved during investigation, as reliable and robust for every case. In social psychology such
behavior took the name “fundamental attribution error”. From the reader point of view
generalization could be provoked by author authority and popularity. It is a common mistake also
to interpret results in beyond the investigation context.
Considering literature discussing consumer behavior on mortgage market the same gaps
could be identified. There are plenty of studies which investigate borrower choice between
different mortgage products and banks (Statman, 1982; Alm and Follain, 1984; Stanton and
Wallace, 1999; Campbell and Cocco, 2003; Paiella and Pozzolo, 2007; Koijen et al., 2009).
However there is lack of framework dedicated to understanding very potential borrower profiles.
Therefore the research gap could be formulated as lack of understanding of consumer
“black box” in Russian mortgage market in context of financial crisis.
1.3. Research problem, goal, questions and scope
Russian housing market is one of the least affordable among the world. Therefore,
mortgage lending is the only way to buy own house. However borrow, beliefs of mortgage
lending are negative (Ibragimova, 2012). Therefore continuous search for ways that will increase
the popularity of mortgage among population and provide stable growth of mortgage lending
volumes is required. One of such way could be understanding potential borrowers behavior in
order to satisfy their needs. However Russian mortgage banks analyze consumer behavior taking
into account age, gender, income, occupation and other personal factors (Skiba, Loyko, 2012).
Russian banks on mortgage market neglect consumer behavioral factors, hidden in consumer
“black box” (Alikperova, Yarasheva, 2015; Kotler, 2008). This leads to providing borrowers
wrong mortgage product and therefore, provokes mistrust to banks and negative perceptions
about mortgage among Russian population. Thus, the goal is to link mortgage products available
on Russian market with potential borrowers segments in dependence on their behavioral "black
To achieve this goal two research questions could be posed:
What are profiles of potential borrower in Russia?
What are products that correspond to potential borrower profiles?
To analyze what factors influence the consumer behavior.
To modify them in context of mortgage market and crisis.
To develop potential borrower profiles in Russia.
To overview Russian mortgage market.
To analyze what mortgage products correspond to what profile.
To develop recommendations how profiles of potential borrowers could be
This study will be focused only on mortgage loans, eliminating other banking products.
cultural background and psychological layer of consumer behavior. As a cultural background
only crisis conditions will be considered. As a psychological layer potential borrower perceptions
under crisis situation will be taken into account. Some personal characteristics will be included.
Other layers of consumer behavior will be eliminated.
Study is dedicated only to Russian population and will examine not borrower behavioral
patterns but potential borrower behavior.
Conducted research contributes both to academic and business practice. It adds
significant value to existing consumer behavior studies and received findings could be applied by
Russian banks in real practice.
1.4. Research strategy and organization of study
The research uses abductive approach starting from general consumer behavioral
theories, then narrowing to consumer behavior under crisis and consumer behavior on financial
markets. However, during the research theoretical framework was several times reconsidered and
modified in dependence on achieved results as this very research is new of hits nature in
consumer behavior theory.
As a research strategy the survey was chosen. Primary data were collected through
questionnaire. Received data were analyzed using SPSS 22.0 applying statistical methods: factor
and cluster analysis. To answer the second research question secondary data were analyzed.
The structure of the thesis is the following. Firstly, consumer behavior theories were
analyzed to build theoretical framework of the study. This chapter includes analysis of decisionmaking process, buying behavior models, consumer behavioral patterns under crisis and
consumer behavioral particularities on financial markets. Secondly, empirical part was provided.
It includes the methodology part where all methods were described in details. Next part of
second chapter answers on the first research question: “What are profiles of potential borrower in
Russia?”. Next Russian mortgage market overview is presented to answer the second research
question: “What are products that correspond to potential borrower profiles?”
Finally, discussion of
findings, theoretical contribution, practical implications,
where recommendations for banks are developed and
and directions for further
research are presented.
2. CONSUMER BEHAVIOR THEORETICAL FRAMEWORK
2.1Consumer behavior models overview
Firstly proposed official definition of consumer behavior was developed by Belch, 1988:
‘the process and activities people engage in when searching for, selecting, purchasing, using,
evaluating, and disposing of products and services so as to satisfy their needs and desires’
However, first models discussing consumer behavior took their development much more
earlier. There are numerous frameworks which are dedicated to understand consumer behavior:
Andreason, A.R (1965),
Nicosia (1976), Solomon, (1996), Horton, (1984), Schiffman and
Kanuk (1997), Howard, and Sheth,(1969), Engel , Blackwell, and Miniard (1995), Bettman
(1979), Sheth, Newman, and Gross (1991), Mathieson and Wall (1982) e.tc. In this chapter only
the most importanty of them will be highlighted.
Behavioral level and policy level are two main dimensions that explain the meaning of
consumer behavior. From the behavioral level of view consumer behavior focus on how
consumer collect, choose, use, evaluate and deal with product to satisafy his needs and wants.
From the policy level consumer behavior definition includes “all consumer’s action involved in
the process of acquire, consume and process product or service, it also include all decisions
before or after the operation” (Engel, Kollat and Blackwell (1993). Consumer can act as initiator,
influencer, decision maker, buyer, user in different situations.
Consumer behavior could be also investigated from macro level, focusing on consumer
characteristics such as demographic traits, attitudes, activities, view – and micro level that
investigate decision making process, purchase intentions, attitudes, awareness of consumer.
The are two main consumer behavior investigation approaches: positivist and the Marxist
one. Positivist approach based on the division consumer buying process into several stages:
perception, cognition, attitude, decision making and feedback. Postmodern or Marxist approach
suggests that consumer behavior influenced and changes in dependence of circumstances and
aimed to mix together environment and consumer particularities together.
Traditional Micro approaches
Economists were pioneers who try to understand consumer behavior. Economic approach
took the first concepts development as far back as Adam Smith wrote his “The Welth of
Nations”. Model is based on the assumption that every consumer tend to maximize benefits or
self-utility and minimize his costs. By the end of 19th century Marshal and Hyrvonss developed
marginal utility concept that became a ground for Marshal or economic model. According to the
model consumer makes always rational exactly planned choice that is rarely encountered in the
Learning model claims that consumer behavior is a result of consumer desire to satisfy
his basic and learned needs. The most popular learning model is Pavlov model. According to this
approach purchase decision is related to consumer psychology. Russian psychologist detected
four main components that affect consumer behavior:
Need or motive, that in its turn are divided into primary and acquired
Attribute or implication that create consumer perception of the product.
Response or behavior
Reinforcement. It occurs when consumer satisfies his initial demands
Freud Model or Psychoanalytic model
This model investigate human behavior based on Unitarian theory. Model relates human
behavior to psychosexual factors. In other words this approach pays attention to conscious and
subconscious mind. Psychologists try to research real reasons that make consumer to buy.
However, they suggest that only assumptions could be made as it is impossible to understand real
psychological consumer intentions. Model indetify such factors as motives, perception and
Sociological or Fiblin model
The model approach consider consumer as a social being whose behavior are provoked
by his culture particularities, sub-culture factors and his communication environment. Fiblin
suggests that consumer behavior can’t be considered independently of his social environment in
other words people act as act their social groups members. Fiblin’s approach itself contains some
drawbacks: for example, he doesn’t consider the fact that some individuals don’t want to belong
to particular social class, but need to this, in this case they will not behave as other members.
Modern scientists modified this model and apply it as a base.
The Howard-Sheth model
This is one of the most comprehensive model. It investigate consumer behavior from
various aspects and factors. It aims to understand consumer defined choice among other
available alternatives. Three main consumer behavior components are
Motivating inputs demonstrate brand significance and affected by social consumer
environment. External factors are social consumer characteristics that are remained during long
period such as knowledge, personal traits, social and financial status. Last groups represents
consequential factors that is an output from two previous components.
All these components are interconnected with perception and learning. Perception
includes gathering information through five senses and decoding to recognizable form
understandable for the individual. Perception process is composed of search information,
sensitivity to information and perceptual bias. This approach pays attention to correspondence
between information and consumer perceptions and highlights the significance of information for
consumer behavior. Learning process concerns with half-permanent changes in consumer
behavior due to learning new knowledge, information, experience.
Learning aspect consists of six elements: motives (specific and non-specific), awareness
(trademarks, rejected and equity groups), situation, intermediate factors, obstacles and
satisfaction. This model contains a variety advantages as well as disadvantages for applying. It is
very appropriate of multibrands products and services, can be adapted to different contexts.
However, as purchasing decision due to its complex nature isn’t always systematic that go
beyond the model concept. The decision making process is comparable to the previous model it
includes: problem identification, evaluation of alternatives, selection process and evaluation
The Howard-Sheth model was several times revised and modified. More recent versions
try to explain consumer choice in limited and constrained information availability. Learning
dimension involves 3 levels: extensive problem-solving, limited problem solving and the
routinized one. The first level alludes that people have are not aware about brands (figure 2.1).
Consumer is prone to deep information searching. Limited problem-solving appears when
consumer has perceptions and beliefs about brands but they don’ have exactly established
preferences. Routine problem solving implies that individual has clear established knowledge of
brand and preferences.
Figure 2.1. Decision-making process. Howard-Sheth, 1969
The Engel-Kollat-Blackwell Model
This learning model aims to solve challenges related to consumer behavior. The EngelKollat-Blackwell Model is an expansion of Howard-Sheth model. It consists of 5 decisionmaking process: problem recognition, search of alternatives, alternate evaluation, purchase and
outcomes (figure 2.2). However it is mentioned that it is not obligatory for consumer to pass all
steps in decision-making process. Environmental factors, external and internal, have impact on
every decision making stage. Internal variables are basic and acquired needs. Environmental
factors concern with marketing actions. There are two possible outputs: satisfaction and
frustration. On the basis on this model were also developed.
Figure 2.2 The Engel-Kollat-Blackwell Model, 1968
The Nicosia Model
In the ground of this model lie relationships between organizational behavior and the
individual. Basic assumptions suggest that organization’s message aims to make customer aware
of unfamiliar products that he can compare it with other products. First field includes two subfields consumer and firm’s attributes (figure 2.3).. It is suggested that company message will
achieve consumer attributes. The second field concerns with searching and evaluating processes.
The third field discovers how the consumer makes a purchase. The last fourth field is applied as
output to get feedback on company sales performance.
Figure 2.3 Nicosia Model, 1976
The model is built on “black box” concept. To make people buy defined products
marketing and other stimuli have to get inside consumer “black box” which contains consumer
characteristics and decision process, to understand what is inside and how to motivate people to
response (Figure 2.4).
Figure 2.4 Stimuli-Response Model. Kotler, 1999
Marketing mix refer to different components that company needs to analyze to satisfy
customer needs. Traditional marketing mix consists of 4 elements: product, price, place and
promotion (Jobber and Fahy, 2009).
Product is a core part of marketing mix. If company fails to provide product that fulfill
consumer needs other marketing mix components would not improve situation. Concept of
product involves such characteristics as variety, quality, design brand, features, packaging,
services and warranties (Kotler et al., 2008). Product also could be divided by the level to which
it belongs: core product, actual product and augmented product.
Price is responsible for generating profit for the company. To set price company should
consider extremal (competitive environment) and internal (cost and marketing strategy) factors
(Kotler et al., 2008).
Promotion is a set of activities aimed to link benefits of products to consumer needs. It
consists of advertising, sales promotions, direct marketing, personal sales and public relation
(Kotler et al., 2008). Advertising deals with spreading company message through impersonal
media such as TV, radio, Internet and so on. Sales promotions are short-term events undertaken
by companies to encourage demand fro product or service. Personal selling’s goal is to strength
relationships with customer through personal presentation. Public relationships concern with
setting and maintenance of communications with all company stakeholders.
Place refers to the form in which product is provided to customers (Kotler et al., 2008).
This component involves distribution channels and means of physical distribution. Distribution
channels include people, companies and institutions that serve as a mean of offering services and
products. Means of physical distribution concerns with mechanisms that aimed to reduce
physical distance between company and its clients.
2.1.1. Factors that affect consumer behavior
Generally factors that determine consumer buying behavior could be divided into 5
groups: cultural factors, social factors, personal factors, physical factors and marketing mix
(Kotler et al., 2008)
It is generally accepted to include into social aspect following dimensions groups, family
roles and status.
As consumer is a human and belongs to to different groups, his behavioral frames
significantly affected by groups norms: regulations, habits, morals. A good example of how
companies groups and consumer behavior connections is personal hygiene advertisement that
claims that in the case if individual will not use their products he will be ostracized. (Cant et al.
Reference groups are such groups that affect person’s behavior in direct or indirect way.
Opinion leaders, (celebrities, sport figures, actors) who could persuade other members opinion
are the target audience of company marketing. There are 3 types of reference groups affect –
informational influence, utilitarian influence and value-expressive influence. Informational
influence suggest that consumer search information from some professional groups. Utilitarian
influence means that consumer purchase decision strongly affected by the closest social
environment. When person wants to get respect of others through purchase is a value-expressive
Family usually is the most important and significant social institution for every
individual. The most influence are spouse in daily consumption and children.
Roles and status
Every person has different roles and status in dependence on different social groups. The
role estimation by society give to person status. For example, high job position provides to the
individual status higher than the status of husband, therefore he will try to show his the highest
status through purchase.
To this group belongs life-style stage, economic circumstances, occupation, personality
Consumer behavioral patterns change over time along with age and life-cycle change.
Family life-cycle is also very significant for consumer behavior. Some family life cycle perioda
are young singles, young married, with/without children e.t.c
Occupation directly affect consumer behavior, the simpliest example is if we compare
CEO and teacher purchasing behavior, where CEO will prefer more expansive and premium
barnd than the teacher.
Economic situation in this case means income of a buyer. The influence of disposal
individual income is obvious.
Lifestyle is a mode of living that person choose in dependence of his activities and
Personality is explained by human internal traits like self-confidence, dominance,
aggressiveness etc. People tend to buy products that the mostly match their personality. Selfconcept is emotions that human feel to him-self.
The most important psychological factors are motivation, perception, beliefs and
Motivation is need that motivate person to make a defined purchase. There are different
levels of needs according to Maslow: physiological needs, safety needs, social needs, esteem
needs and self-actualization needs.
Perception is “selecting, organizing and interpreting information in a way to produce a
meaningful experience of the world is called perception”. (There are three types of perceptual
processes: selective attention, selective retention and selective distortion. Beliefs and attitudes
form brand image of the company.
Learning concerns with the process when consumer changes his behavioral patterns in
dependence on previous experience and purchases.
Cultural aspect involves values, customs, norms, rituals and defines consumer behavior.
Culture dimension include subcultures and social class dimensions. Subcultures are
specific groups that differ from general population. Social class is a group of people that have
similar behaviors, lifestyles etc. Each culture provides defined hierarchy of social classes: upper
middle class, middle class, lower middle class, working class and lower class (Meidan, 1996)
According to Pham cultural background include language, economic and political factors,
cross-cultural differences, cultural norms, stereotypes.
2.1.2. Consumer decision making process
There are 4 types of decision making views:
Economic view. This approach assumes that consumer decision making
process is based on utility function. Consumer decision is made after evaluating all
Passive view. Consumer decision making is determined by marketing
Emotional view. In the ground of this type lie feelings and emotions.
Cognitive view. Consumer selects that product or service that satisfies his
As it was previously discussed there different points of view on number of stages in
decision-making process. Some authors suggest 7 stages decision-making process:
Search for information.
Pre-purchase evaluation of alternatives.
Other authors proposes 5 stages:
Evaluation of alternatives
5 stages decision-making process is the mostly commonly used among researchers.
To make decision consumer could apply decision rules to avoid excessive stress in
evaluating every characteristic of service or product. This rules called heuristics. There are
several types of heuristic rules. The first one is compensatory decision rule when consumer
chooses the product with best score, weighting every attribute in defined way. Positive attributes
could cover that ones with low score. Non-compensatory decision rule contrary eliminate
attributes of even one attribute has been negatively evaluated. Conjunctive rule assumes that
every attribute has its own minimum level of acceptance. Attributes below this level are
eliminated. Next heuristic rule is disjunctive one. The main difference from the previous
decision-making rule is that instead of minimal level of acceptance there is cut-off level for
every attribute. Lexicographic decision rule provides ranking attributes in dependence on
significance of each other for the consumer. Affect referral decision rule, the last one, doesn’t
focus on attribute individually it estimates overall product or service score.
Involvement in decision-making process
Consumer involvement brings together customer control, participation and degree of
contact. Uncertainty in its turn explained by risk perception that consists of the purchasing
product complexity and degree of future uncertainty
In dependence on consumer involvement degree in decision making process consumers
demonstrate different extents of their DM process and information search. The perceived
importance of evaluated product/service, risk perception and the probability of make a mistake,
emotional appeal – are the most important factors that determine the consumer involvement
degree (Meidan, 1996) There are three types of consumer involvement: low level, when
attributes are not important to consequences, medium level, high level, when consumer perceives
that attributes are strongly contributed to stated purposes. Main factors that provoke high degree
of consumer involvement are: cost of product in comparison with income, amount of time for the
ownership, degree of which the purchase shows the self-image.
Based on involvement concept three types of consumer decision-making are developed
Extensive problem solving occurs when degree of consumer involvement is high.
Consumer spend a lot of time for information searching, product is new for him and his risk
perception and level of uncertainty is high
Limited problem solving corresponds to consumers who have defined expectations about
the product and already have experience with product. However he is not certain about the brand
and model, options which will fulfill his needs.
Routinized response behavior deals with everyday purchases and characterizes low
consumer involvement in decision making process. Consumer does not need specific research or
information to make a choice
2.2. Consumer behavior in crisis
Consumers are very sensitive to dramatic changes in economic environment such as
economic crisis. It is crucial issue for companies to understand how customers will react on
crisis and how they will change their behavioral habits to successfully survive during the crisis
(Kotler and Caslione, 2009).
During financial crisis people don’t want to spend money on premium products and tend
to choose necessary products. Consumer behavior patterns move from limited decision-making
buying behavior to extensive decision making. Limited decision-making is characterized by low
searching amount time before taking a decision, while extensive decision-making buying
behavior involves much more time for information searching.
Central concept in consumer behavior under crisis takes a concept of perceived risk. Risk
could be identified as consumer perceptions about the probability that his decision will have
negative consequences it concerns with the consumer uncertainty (Tsiotsou, 2008). Six main
components of risk could be defined: financial, psychological, performance, social, safety and
time convenience loss.
Some authors suggest the difference between risk perceptions of product and risk
perceptions of services (Davis et al., 1979). Services perceived as riskier than products and deal
with financial, social and psychological risks. Numerous studies are dedicated to investigation of
relationships between perceived risk and consumer involvement in decision-making process
Consumer behavior during the crisis highly depend on risk attitude and risk perception
that every individual interpret in his own way. Consumers make subjective judgment about their
job stability, purchase power, potential financial losses (Figure 2.6). These judgments provoke
defined emotions like panic, fear, anxiety. Emotions in its turn form the risk attitude that lead to
feelings like mistrust in companies, government or future (Pandelica, 2008).
Figure 2.6 Crisis influence on consumer behavior. Pandelica, 2008
Pandelica (2008) highlights 4 types of consumers according to their risk attitudes and risk
First type – panicked consumers with high both risk attitude and risk perception, are sure
that current economic changes will significantly affect on their life. Usually these consumers
tend to irrational actions. To these groups belong low income unemployed population. Panicked
consumer tend to reduce dramatically their expenditures and try to find products with lowest
Cautious consumers have high risk attitude, but low risk perception, they realize difficult
economic situation, but don’t think that crisis will touch them significantly. Such people have
positive perceptions about their job stability and try to rationally spend money. They tend to
postpone big purchases.
Concerned consumers have low risk attitude but high risk perception and expect that
economic changes will affect them.
They make major purchases only in the case if it is
Rational consumers with low risk aversion and perception remain their behavior before
crisis. They usually have high income and don’t fear that they will loose their jobs.
It is detected 4 main points on consumer behavior changes due to financial crisis in
China. Firstly, he mentions that consumers become less confident and tend to spend less on home
products, personal care good, food and drink and entertainment related goods and services. They
also postpone make major purchases. Secondly, consumer become more rational in their decision
making process and more significantly react on price changes. This motive them to choose
domestic products rather than the foreign ones. Moreover, they elongate the information
searching process before purchase making. Thirdly, during the crisis consumers seek in
advertising the detailed information about product costs, value, functionality et.c. Finally, during
the crisis people use the Internet not only as information resource but also to make purchases
Katona (1974) claims that when people expect that in the nearest future prices will
increase and spend more money on necessities and postpone desirable but not urgent purchases.
One of the first framework that investigate consumer behavior changes during the crisis
was provided by Leller and Schewe (1974) which focus was on American stagflation 1973-1974
(Kotler and Caslione, 2009). Authors analyzed consumption and savings tendencies, postponing
important purchases, change in lifestyles and extensive credit usage. Some main conclusions
were: decreasing buying desire, postponing purchases, increasing purchase duration. Fizbain et
al. (2003) identified 3 types of strategies according to household type during Latin American
crisis. First group, adaptive strategies, relate to reactive response of households. The second type
or active strategy involve the increasing of house good production to sell and increasing working
time and labor supply. Social network, the third strategy group, includes mainly searching for
living support. Robles et al. (2002) Zurawicki and Braidon (2005) investigating the same crisis
concluded that consumers tend to avoid long-term financial commitment and therefore postpone
major purchases, expanding of basic products consumption.
Pikturnien (2009) suggests that there are 6 types of consumer response:
Remain the same behavioral strategy, is the most appropriate for high
Limit spending to survive
Reduce spending to save
Increase “today” quality of life
Consume more products and services
Consume more high quality products and services.
2.3. Сonsumer behavior on mortgage market
Financial products could be classified into 3 groups:
Intangible (loans and saving products)
Physical (mortgage and insurance)
Body and mind assets (financial advise)
Problem recognition on financial markets significantly differs from product to product as
different attractiveness of financial services (e.g. mortgage vs. loan). Financial market
particularity in comparison with other markets is that financial products aren’t usually a goal in
themselves. Monitoring and adjustment stage is crucial for financial decision-making process as
some financial products are long-term and could be modified over time. It is provided four types
of decision-making styles: self-controlled, ambitious, advice-dependent and convenienceseeking.
Meidan (1996) categorized factors that influence financial consumer buying behavior in
internal factors that involve psychological and personal determinants, external (cultural and
social) and purchasing procedures.
Beckett et al. (2000) provides a classification of financial services consumer in
dependence of their involvement: repeat-passive, rational-active, relational-dependent and no
purchase. This model does not pay any attention to risk perceptions despite its high significance
on financial market.
Tsiotsou (2008) classified financial services consumers into 3 groups in dependence on
their needs: traditional, consumers who but transaction products, conformists – consumers of
insurance products and “gambler” – consumers of investment products. These categories
demonstrate different risk perceptions and involvement in decision-making process. Last type of
consumers have the highest risk perceptions and show high involvement. It is assumed that
investment products as they are intangible and complicated lack the consumer confidence. This
type of consumers demonstrate extensive problem-solving and even spend additional money to
search information. Author suggest that for such type of consumers companies must provide
well-trained sales force, publicity, and mass advertising .
Consumer behavior on mortgage market could be divided in two main directions: type of
loan choosing and bank selection.
Besides different variations such as fixed-rate vs. adjustable rate loans there are a plenty
of combinations of interest rate/ discount points inside the program. In academic literature
borrower mortgage choice is popular subject for discussions. (Mugerman and Moran, 2013)
Generally, FRM vs. ARM is explained by borrowers characteristics: income, prepayment
decision, borrowing constraints – and external economic factors like inflation (Statman, 1982;
Alm and Follain, 1984; Stanton and Wallace, 1999; Campbell and Cocco, 2003; Paiella and
Pozzolo, 2007; Koijen et al., 2009).
Basel and Biger (1990) and Statman (1982) investigate the borrower incentives to choose
between fixed-rate and index-rate mortgages. Statman provide a model that link borrower choice
with two types of relationshiops: rate of changes in income with inflation and house net value
with inflation. Alm and Follain (1984) consider two directions: the inflation influence on
mortgage choice and the dependence between housing demand and alternative mortgage
instruments. Cambell and Coco found out that borrower prefer ARM when house value is
significantly lower than their income, when income is stable over time and when they have plan
to move soon.
Jan K. Brueckner (1993) made a fundamental analysis of the mortgage points by using
economic tools like indifference curves, zero-profit loci, regression. In the paper the trade off
discount points/interest rate is considered. Its existence is proved by the regression model. Data
selected from the Home Financing Housing Database, demonstrate mortgage loans that had been
taken for 4 years 1981-1985. The information about a quantity of bought mortgage points is
available for each observation. High-points contract are divided in two groups to avoid a bias;
one of them defines mortgages with points greater than 200, the other one – greater than 250.
In the result, the regression equation shows the significance correlation between points
and rate: each point reduces rate approximately by 9.5 basis points. In addition in this framework
are indentified conditions at which mortgage points’ purchase was profitable for the borrower. In
the author's opinion all borrowers can be divided in two groups: one of them is low-mobile, the
other one – high mobile. Dunn and Spatt at introduced the first, the borrower mobility concept.
1988. It suggests that borrowers who is going to refinance or in other words move in the nearest
future tend to choose options with low points. Each of them has his-own indifference curve and
utility function, depending on their fixed payments in two periods (I0, I1). The author proves
that, borrowers, whose probability of the movement is high choose mortgage contracts, where I0
< I1 and vice versa. Thus, high-mobility borrower prefers not to buy points now, but to have a
higher interest rate. Low-mobility borrower in the points/rate trade off chooses a point purchase.
This assumption is proved by the linear regression, where independent value is purchase/refuse
of purchase of mortgage points and the dependable variable is a movement of the borrower. AHS
database presents an information about mortgage contracts in 1984 and 1985 and observations
about the same borrowers in 1989, which demonstrates whether the borrower had moved or not.
But there is a contrary research of Charles A. Stone, Anne-Marie Zissu (1990). Authors
apply the expected monetary value (EMV) algorithm. Obtained results show that the purchase
(or not) of the mortgage points depends on
Tax bracket of the mortgagor.
Time over which he/she expects the effective cost of mortgage capital to remain.
Probability a mortgagor attaches to the event that interest rates change at time.
For instance, if mortgagor expects, that the interest rate falls, he would rather take
advantage of his prepayment option. Authors confirm that high and low mobility borrowers may
make same choice. And, conversely, the choices will differ if mortgagors in the same tax bracket
and with the same expected tenure in the mortgaged property have different expectations about
the future cost of mortgage capital.
Banking marketing mix
Marketing mix concept has particularities in dependence on industry where company
exists. In context of banking industry product component could be defined as any service
proposed by bank: loans, deposits, cash-transactions, credit cards (Lipowski, 2003). Quality of
the offered banking service plays the most significant role for bank, as it is one of the most
important competitive advantages among huge variety of similar services proposed by huge
amount of banks. Packaging in context of banking sphere refers to packaging of contracts in
branded folder. Advisory services belong to service component of product concept in marketing
mix. The first level of product – core product – in simple words is division of banking services in
accordance with their types: loans, credit cards, mortgages and so on. Actual products specify
banking service to concrete features: interest rate, type of loan, loan period and so on (Lipowski,
2003). To augmented banking service the quality of information provided by bank could be
Price in banking sphere includes interest rates, commissions and fees taken by bank. The
price is defined in dependence of loan period, type of loan redemption and banking risks. From
the customer point of view price very often take the first place in bank selecting.
Promotion of banking services could be split into two groups by their objectives. First
type aimed to inform customers about bank and its offering to attract clients through advertising
and personal selling. Public relations form the second group of promotion activities to ensure and
maintain positive brand image of bank.
Bank distribution channels involve several types such as traditional distribution
(in banking office), non-stationary distribution – visits of banking staff consumer mobile places,
electronic distribution channels. The selection of one or another distribution tool goes along with
2.4. Relationships between bank and mortgage borrower in Russia
Some empirical findings claim that 60% of Russian banks apply income information and
some criteria of client relationships with bank, however, to reliable and deeper analysis it is
necessary to conduct multiple-factors analysis, involving borrower risk profiles and other
significant socio-economic factors (Knyazeva, 2011). Banking products need to be developed in
dependence of detected client profiles. Traditional approach is based in the majority on such
factors as age, income, occupation, social status, today this approach needs to be extended and
modified to strategic-oriented approach. It will allow bank to understand and analyze motives of
client in selecting one or another bank, financial literacy and preferred channels of
communication (Skiba and Loyko, 2012).
The main focus of Russian banks is to evaluate solvency of the borrower, applying
scoring system of assessment, based on borrower income and credit history. (Skiba and Loyko,
Potential borrowers could be divided in several groups in dependence of classification
By income: high-income borrower, medium-income borrower, low-income
By occupation: employed, unemployed
By age: 20-25, 25-30, older than 50 years old.
By behavioral patterns: living for the day, adventurists, realists, tend to be
in the movement (Knyazeva, 2011).
Mistrust to banks is one of the factors that provoke mistrust and dissatisfaction on
mortgage market. In crisis conditions this issue takes more crucial character, However, this factor
does not significantly considered in banking context (Ibragimova, 2012). Therefore banks have
great potential and scope to form borrower loyalty. To increase loyalty among potential
borrowers it is necessary to strength strong relationships with bank through high quality
servicing. For 29% of respondents the banking staff competence is the most significant factor,
16% claimed that they estimate the readiness of banking employee solve problem in the fastest
way (Alikperova and Yarasheva, 2015).
It is also necessary to mention that in Russia financial services are dictated by banks, but
is not conscious client decision (Alikperova and Yarasheva, 2015).According to NAFI
investigation conducted in 2012 38% of respondents claimed that bank makes them to purchase
insurance with selected financial service. This leads to unwillingness to pay for credit products.
Moreover, respondents (21%) claimed that they do not like banking advertisement as it usually
deceive. Such perceptions are the result of previous negative experience.
To increase loyalty among clients of banks some suggestions could be formulated:
Increase of financial literacy.
Transparency of information.
Detailing explanation of every financial service.
Judicial security of client.
Taking into account previously analyzed issues stimuli-response model from the banking
point of view could be built. Russian banks take into consideration only personal factors of
potential borrowers as age, income, social status, but neglect borrower psychology and decisionmaking process. This lead to financial mistakes made by borrower in bank and product selection,
that leads to borrower dissatisfaction, mistrust to banks and prohibit mortgage market
development in long-term perspective (Figure 2.7).
Summary of chapter 2
After extensive literature review was provide the theoretical framework could be
summarized in this part of chapter (Figure 2.8).
Basing on stimuli-response model we will focus on psychological layer of potential
mortgage borrowers. Factors that are included in psychological group are selected taking into
consideration financial market particularities and crisis conditions (Alekperov and Yarasheva.
Beloglazova and Krolivetskaya, 2010;
Pandelica A., 2008). The most important
psychological factors are motivation, perception, beliefs and attitudes. Cultural background
affects the psychological layer through feelings and emotions: risk attitude and risk perception.
That in their turn leads to mistrust in future, companies, government, fields of activities
(Pandelica A., 2008). Favorability of Russian market for major purchases. (Pikturnien, 2009,
Figure 2.7 Stimuli-response model on mortgage market from banking point of view
Source: by author
Robles et al., 2002 Zurawicki and Braidon 2005, Leller and Schewe 1974, Katona, 1974,
Pandelica, 2008). Tendency to save. (Leller and Schewe,1974, Pikturnien, 2009, Kholi and
Jaworski, 1993). This framework covers motivation, perception and beliefs and attitudes in terms
of mistrust to mortgage and mistrust to future. As motivation the need for housing conditions
was selected as in the majority this is the most crucial reason that motivates people to take
mortgage is dissatisfaction with current housing conditions. (Aymaletdinov, 2013, Prosvirin,
Perception, beliefs and attitudes: Trust to future (Aymaletdinov, 2013), trust to mortgage
(Kondrashov, 2012; Ivasenko, 2006; Ivanova, 2010).
Personal factors of potential borrowers are also included, based on classical factors that
are considered by banks. Demographics play significant role in consumer behavior patterns and
belongs to personal layer. To narrow the scope to mortgage market particularities 3 the most
critical factors have been chosen: age, gender, subjective assessment of income. (Aymaletdinov,
2013). Personal factors also concern with economic situation, occupation, education, lifestyle
Financial literacy is a crucial fact in taking financial decisions (Kivetz, 2000; Meidan,
1996). There are several ways to measure financial literacy, this research would consider two
items: education, existence of mortgage (Aymaletdinov, 2013). Education. Existence of
mortgage. (Kivetz, R., 2000; Meidan A., 1996). Next point that is covered by this study is a
decision-making process we will try to understand borrower involvement in decision-making
process in dependence of borrower profile. Products, place and promotion were selected from
4P’s marketing mix, as price is beyond this study scope.
Cultural layer: crisis
High interest rates,
long formal procedures
Borrower black box
Mistrust to future:
future income, labor
Mistrust to mortgage:
Easy to access to
Mistrust to banks
Involvement in decisionmaking process
Learning & memory
Subjective assessment of
Figure 2.8 Consumer behavior on mortgage market theoretical framework
Source: by author
3. METHODOLOGY AND DATA COLLECTION
3.1. Research Philosophy, research approach and research design
Among five major philosophies: positivism, critical realism, interpretivivsm,
postmodernism and pragmatism – the last one was chosen for this framework. (Saunders et
al.2009). This philosophy is the most convenient in this research context as it is impossible to
apply a single philosophy. Pragmatism assumes that the research could be based not on just one
research philosophy. Pragmatic research considers ideas, concepts, and findings in their
relevance for practice in particular context. The main goal of such frameworks is a practical
contribution that discloses the future. (Saunders et al.2009). So, in terms of this master thesis
pragmatism fit its idea in the best way.
As an approach the abductive one was applied. Starting from general consumer behavior
theory we move to consumer buying behavior than to consumer behavior under crisis and
consumer behavior on financial markets then some assumptions were made. However, the goal
of this framework was not to test hypothesis and exploratory design significantly undermines the
idea of deductive approach (Saunders et al.2009). Inductive approach is also not favorable for
this research as the consumer behavior is widely discussed in the literature. However, there is far
less information in the particular investigated patterns. The most convenient here is abductive
approach. It is widely applied to understand consumer behavior and does not contradict using
exploratory design (Haig, 2005). This approach is resistance for constraints that possess
deductive and inductive methods and effectively combines both of them.
The exploratory research design has been chosen to answer research questions. This
design is applied when the researcher aims to understand nature of phenomena. The goal of the
framework is to provide insights in consumer behavior on mortgage markets that ideally fit the
purpose of the exploratory design. Exploratory design is used in cases when stated problem need
to be more precisely explained. Another reason for the exploratory design choice is that the
information the consumer behavior in particular conditions is poorly defined. Moreover applied
methods are the most appropriate for this type of design (Malhotra, N.K., 2012). Quantitative
exploration was applied (figure 3.1).
3.2. Data collection
3.2.1. Primary data collection: potential borrower behavioral factors
To answer first research question: “What are profiles of potential borrower?” – primary
data were collected. To collect primary data survey techniques was used. This method was
chosen by several reasons. First of all, it allows to gather information in short time and easy way.
Secondly, achieved data are consistent as questions “are limited to the alternatives” (Malhotra,
2012). Finally 172 answers were collected. In the questionnaire the majority of questions are
fixed-response questions that reduce the variability of gathered data.
The traditional sampling method was used: online survey as it is the fastest method. As a
sampling techniques the non-probability one was applied: snowball and convenience.
Questionnaire was posted in groups related to mortgage social networks as vkontakte.ru, friends
were asked to answer, questionnaire was sent by email to one of the Russian bank and big gas
and oil company.
The choice could be explained by the nature of this framework. The goal is to understand
not the buying behavior, but the consumer behavior. The sampling method could provide some
biases, so the researcher focuses on absolutely different persons. Non-probability sampling could
not give results on which objective conclusions will be made, so the representative of sample is
undermined. However, non-probability sampling techniques are recommended and convenient
for exploratory design (Malhotra, 2012). Than statistical procedures were conducted –
exploratory factor analysis and k-means cluster analysis, using SPSS 22.0 Statistics.
3.2.2 Secondary data collection on Russian mortgage market
To answer second research question: “What are products that correspond to potential
borrower profiles?” – secondary data were collected. External secondary data were analyzed.
The information was searched in computerized online databases provided by Agency of House
Mortgage Lending (www.ahml.ru), Russian Statistics Committee (http://www.gks.ru/), National
Agency of Financial Investigations (http://nacfin.ru/) and different banking forums including
sites of Russian banks.
3.3. Measurement of consumer behavioral variables
Questionnaire was constructed on the basis of different sources as it is exploratory design
(Appendix 1). The main purpose of the questionnaire was to fit factors initially claimed:
psychological and cultural background in context of crisis. (Pandelica., 2008). Almost all
questions have 5 points balanced scale: likert and semantic differential in the majority (from 1to
5, as negative and positive answers could create positive response tendency) (Saris, Gallhofer,
2007, Malhotra, 2012). In case of factor data analysis scales 5 points scale is enough (Table 3.7).
All questions have been asked with positive intention (Malhotra, 2012).
Cultural Background: consumer behavior under Crisis
The first block involves 2 items are dedicated to understand the consumer behavior under
crisis, in general, not on mortgage market in Russia: favorability of Russian market for major
purchases and tendency to save.
Favorability of Russian market for major purchases. First question aimed to detect
respondents perceptions about the favorability of Russian market for major purchases, as
numerical frameworks discussing consumer behavior under crisis, claimed people tend to
postpone major purchases. (Pikturnien, 2009, Robles et al., 2002 Zurawicki and Braidon 2005,
Leller and Schewe 1974, Katona, 1974, Pandelica, 2008).
Tendency to save. Under crisis people tend to save money and this was the sense of the
third question (Leller and Schewe,1974, Pikturnien, 2009, Kholi and Jaworski, 1993). These
questions are semantic differential scaled with two bipolar points: “strongly disagree” and
The most important psychological factors are motivation, perception, beliefs and
attitudes, learning. Cultural background affects the psychological layer through feelings and
emotions: risk attitude and risk perception. That in their turn leads to mistrust in future,
companies, government, fields of activities (Pandelica, 2008). This questionnaire covers
motivation, perception and beliefs and attitudes in terms of mistrust to mortgage and mistrust to
Perception, beliefs and attitudes
Trust to future
Second block is about future perceptions or trust future. It consists of three items:
expectations about future economic situation, expectations about future of labor market and
expectations about future income. (Aymaletdinov, 2013). All this questions are semantic
differential scaled with two bipolar points: “strongly disagree” and “strongly agree” and the
neutral point in the middle.
Trust to mortgage
Next block consider perceptions about mortgage and includes 4 items: trust to banks,
easy to access to mortgage, the judicial security on mortgage market and the transparency of
information provided by banks. As there is no previous research papers devoted to this very topic
this block was constructed on the major problems of mortgage lending in Russia, retrieved from
literature, banking forums and sites. All questions in this block are single-choice and have
semantic differential scale “strongly disagree” and “strongly agree” and the neutral point in the
Trust to banks. Under crisis in dependence on risk perception and risk attitude consumers
perceptions of companies and, thus banks, become more negative (Ivasenko, 2006; Kondrashov,
Easy to access to mortgage. High interest rates, difficult and long procedure of
application consideration, high requirements to the borrower make the access to mortgage
sophisticated and complicated that (Kondrashov, 2012).
The judicial security on mortgage market. The judicial side of mortgage market isn’t also
developed: there is a lack of strong and unified law system, poor handling of rights to use
dwelling, lacks or rules and regulations for mortgage securities aimed to attract more investors
on the market (Ivanova, 2010). So perceptions about the judicial security on mortgage market
could have significant affect on consumer behavior.
The transparency of information provided by banks. This problem was driven after
analyzing different banking forums and banking site. Just several banks provide easy to access
transparent information on their sites. Moreover, there are some judicial cases, when the
borrower accuse bank of implementing hidden fees.
In the majority the most crucial reason that motivates people to take mortgage is
dissatisfaction with current housing conditions. This block includes 3 items: necessity to improve
housing conditions, quantity of family members living in the same apartment and the type of
respondent apartment: own or rented. (Aymaletdinov, 2013, Prosvirin, 2008).
The necessity of improving housing conditions. This is semantic differential scale
question with two bipolar labels: “strong necessity for housing conditions improving” and
“absolutely no necessity for housing conditions improving” And neutral point in the middle.
Number of family members living in the same apartment. This single-choice close-ended
question with 5 possible alternatives, including 0 – “live alone” and 5 – “live with more than 4
family members together”.
Type of respondent apartment: own or rented. This is dichotomous question – “own flat”
or “rented flat” with open-ended option “other”. Answers were coded in dummy variables: 0
was given for respondents who do not live in their own apartment and 1 for those, live in their
Demographics play significant role in consumer behavior patterns and belongs to
personal layer. To narrow the scope to mortgage market particularities 3 the most critical factors
have been chosen: age, gender, subjective assessment of income. (Aymaletdinov, 2013).
Personal factors also concern with economic situation, occupation, education, lifestyle e.tc.
Financial literacy is a crucial fact in taking financial decisions (Kivetz,, 2000; Meidan,
1996). There are several ways to measure financial literacy, this research would consider two
items: education, existence of mortgage (Aymaletdinov, 2013).
Education. This is a structured single choice question. The level of education was divided
as: only school education, secondary vocational education and higher education. Received
answers were coding in interval variables starting from 1 to 3 respectively.
Existence of mortgage. Some researches prove that people with credit history in the past
tend to be more financial literacy and more opened and familiar with credits (Kivetz, 2000;
Meidan, 1996). As mortgage is a very specific type loan we will consider only the existence of
mortgage. This is dichotomous question. Then it was coding 0 for answer “No, I don’t have a
mortgage and 1 for “yes. I have a mortgage”
Age. This is single choice question. For respondents 4 options were provided:
under 18, 18-21, 22-30, 31-45, over than 45. The decision to split age in such a way was led by
the fact that there are different mortgages options for different age groups. (www.ahml.ru) For
instance, people from 22 to 30 years old could be considered as young family and therefore,
government subsiding mortgage could be proposed for them. Then answers were coded in
interval variables for 1 to 4, respectively.
Gender. This is dichotomous question. Answers were coded in dummy variables: 0 was
given for female and 1 for male.
Subjective assessment of income. The decision to use the assessment of income but not
the amount of income was driven by the framework of Aymaletdinov T.A. (2013). The goal is
not to understand the nominal income of respondent but his perception about its sufficiency. This
is structured 5 points likert scale question. (1- extremely insufficient to 5 – more than sufficient)
Last question in questionnaire measures the desire to act in this case take a mortgage in
the neasrest 5 years. This question belongs to semantic differential scale, with two bipolar
adjectives: “definitely not” and “definitely yes”.
3.4. Data Analysis
3.4.1. Factor analysis of potential borrower perceptions
First exploratory factor analysis was run to check and identify initially claimed
dimensions for further cluster analysis. The first point is to analyzing the sample. There is no
common rule what is the ideal sample size for factor analysis. Some authors claim that 300 cases
is the most appropriate size, others suggests that 100 cases or even 50 cases is the minimum
threshold (Williams et al, 2010). More robust technique to identify the optimal sample size is to
calculate sample to variable ration – N:p, where N is a number of participants and p is a number
of variables. The ideal ratio could also vary from 3:1 to 20:1. In our case sample to variable
ration equal 24:1, as only 7 variables: trust to banks, easy to access to mortgage, the judicial
security on mortgage market, the transparency of information provided by banks, expectations
about future economic situation, expectations about future of labor market and expectations
about future income.
These amount was chosen after correlation analysis, after which some variables, which
correlation coefficient is less than 0,3 with the majority of variables, were excluded from factor
analysis. (Tabachnick and Fidell, 2007)The minimum recommended number of items in one
factor is 3, as 2 items may just be highly correlated between each other that undermine the sense
of factor analysis. High correlation coefficient is also demonstrates that factor analysis is not
appropriate. In this case all selected variables are convenient for factor analysis (Table 3.1)
Table 3.1 Correlation coefficients
Continue of Table 3.1 Correlation
Trust to banks
Easy to access to
about future of
Source: modified SPSS output
Then Kaiser-Meyer-Olkin measure of sampling adequacy and Bartlett’s test of sphericity
were conducted. The KMO index excess the commonly used minimum – 0,5 therefore sample
could be considered as suitable for factor analysis. The Bartlett’s test is significant (Chi2 –
267,129, df 21, p<.000) and proves the same suggestion (Table 3.2).
Table 3.2 KMO and Bartlett’s Test
KMO and Bartlett's Test
Kaiser-Meyer-Olkin Measure of Sampling Adequacy.
Bartlett's Test of Sphericity
Source: modified SPSS output
As an extraction method the principal component analysis has been chosen (Costello
A.B., Osborne J.W., 2005; Frösén J. et al., 2013). As a rotation method the varimax was chosen
and 0.5 was set as a minimum factor loading (Frösén J. et al., 2013; Table 3.3).
Table 3.3 Rotate component matrix: factor loadings
Rotated Componant matrix
Expectations about future
Trust to banks
Easy to access to mortgage
The transparency of information
provided by banks
Expectations about future of
The judicial security on
Expectations about future
Source: modified SPSS output
All variables exceed the minimum threshold set. Two factors were rotated that fit initially
set dimensions and could be interpreted as factor 1: beliefs about future, let call it trust to future
and beliefs about mortgage, let name it trust to mortgage.
Then, the reliability test was conducted. The Cronbach’s Alfa exceeds the
minimum threshold – 0,6 (Table 3.4). The value is not very high, however this could be
explained by the fact that this coefficient highly depends on number of items in factor (Kristoff,
1963; Feldt, 1965)
Table 3.4 Reliability Test
Reliability Test for 1 factor
Reliability test for 2 factor
Source: modified SPSS output
3.4.2 Cluster analysis of potential borrowers
Then the cluster analysis was conducted to identifiy potential borrower profiles in
dependence of two identified dimensions: trust to mortgage and trust to future. The nonhierarchical k-means algorithm with Euclidean distance was applied, as it is the most commonly
used method and is easy to future interpretation. (Hair et al.,2006,). The number of clusters was
identified based on logic, 4 clusters were created (Table 3.5). Number of cases in each cluster
doesn’t significantly differ, therefore 4 clusters could be considered as right decision.
Table 3.5 Final centers of clusters
Number of Cases in each
As factor scores range from -3 to 3, then negative values demonstrate negative
perceptions and positive value – positive perceptions. To find differences among clusters crosstabulation were used with applying chi-square statistic (Table 3.6). After this procedure it could
be concluded that following variables differ between clusters:
Number of family members
Necessity to improve housing conditions
Tendency to save
Plan to take mortgage
Existence of mortgage
Gender, type of respondent apartment (own or rented) and favorability of Russian market
for major purchases were excluded from further analysis as the number of cases in clusters is
Table 3.6 Description of potential borrower profiles
Options of answer
living in the same
Tendency to save
(Last years you
try to save
Do you plan to
take a mortgage
Cluster 1 Cluster 2 Cluster 3 Cluster 4
Don’t have a mortgage
Have a mortgage
Live with 1 family member
Live with 2 family members
Live with 3 family members
Live with 4 family members
More than 4 family members
As soon as possible
Can not say
Possibly, but not necessary
Older than 45
Can not say
Can not say
Summary of chapter 3
To achieve research goal and answer research questions abtuctive approach was used in
context of pragmatism research philosophy. Study has exploratory design and both primary and
secondary data were collected. To collect primary data questionnaire was chosen as a method
(Figure 3.1, table 3.7). Then factor an cluster analysis were conducted (Table 3.3; table 3.5)
Cultural layer: 2 items
5- p o i n t s s e m a n t i c
5- p o i n t s s e m a n t i c
Pikturnien, 2009; Robles et al., 2002;
Zurawicki and Braidon 2005; Leller
and Schewe 1974; Katona, 1974;
Pandelica, 2008; Leller and
Schewe,1974; Kholi and Jaworski,
Aymaletdinov T.A., 2013
Ivasenko A.G.,2006; Kondrashov
V.A., 2012; Ivanova D.G., 2010;
Prosvirin A. V., 2008
5 - p o i n t s s e m a n t i c Ay m a l e t d i n o v T. A . , 2 0 1 3 ;
Prosvirin A. V., 2008
Figure 3.1 Research Design. Source: author
literacy: 2 items
Kivetz, R., 2000; Meidan A., 1996;
Nominal scale, coded to Aymaletdinov T.A., 2013
5 - p o i n t s s e m a n t i c Aymaletdinov T.A., 2013
Table 3.7 Scales of cultural, psychological and personal factors
4. EMPIRICAL FINDINGS ON CONSUMER BEHAVIOR IN RUSSIAN
This chapter describes received research results on consumer behavior of potential
borrower in Russia, based on factor (Table 3.3) and cluster analysis (Table 3.6). This chapter
includes two parts. The first one – research findings: potential borrower profiles – answer the
first research question and concerns with received clusters descriptions (Figure 4.1). In the
second part – research findings: correspondence of mortgage products to potential borrower
profiles – the second research question. Subchapter involves 2 parts. The first one overviews
mortgage market in Russia to identify available mortgage products and analyze their
Source: author (Table 4.3). In the second subchapter analyzed mortgage products are suggested to
potential borrower profiles (Figure 4.6) on the basis of empirical results and academic literature.
4.1. Research results on potential borrower profiles
Figure 4.1 Potential borrower profiles. Source: by author
Cluster 1(30%): First cluster represents people that don’t trust mortgage and don’t trust
the future, so they have bad perceptions about banks and don’t think that mortgage is affordable
for population. They have bad expectations about future income and tendencies on labor and
economic markets. This is the biggest cluster, 14% in it plan to take mortgage and 8% aren’t sure
about the decision. (Table 3.6) These people usually have low level of education – only 5.9% of
them have higher education (Table 3.6). They have high need to improve their housing condition
and live with a lot of family members, however, they evaluate their income as low. Let’s name
them pessimists as they don’t trust anything (Figure 3.2).
Cluster 2: They have bad expectations about future while believe that mortgage lending
in Russia could be a good way to buy a house. In the majority their education is of high level.
This is the youngest cluster 90% of its representatives are 22-30 years old and estimate their
income as normal. 34 % of them is going to take a mortgage in the nearest future and 21,5%
aren’t sure about it (Table 3.6). Let them name future skeptics (Figure 3.2).
Cluster 3: The opposite to cluster 2 to the third cluster belong people that believe in
positive tendencies in economics, labor market and their future income, but have bad perceptions
about mortgage lending system in Russia. They usually have low level education: secondary
vocational or only school, estimate their income as normal and sometimes more than sufficient
and nobody have a mortgage already (Table 3.6). Only 11% plan to take mortgage in the nearest
future and the same percent hesitate to make a strong answer (Table 3.6). Let name this cluster as
mortgage skeptics (Figure 3.2).
Cluster 4: This is the most optimistic cluster as represents people that have good
expectations and perceptions about both future and mortgage. The majority of them have already
a mortgage. They estimate their income as very high, they tend to save money. To this cluster
belong people who are older than 30 years. This the “oldest” cluster (Table 3.6). 50% of them
plan to take mortgage in the nearest future and 17,5% aren’t sure about the decision (Table 3.6).
Logically that could be defined as optimists (Figure 3.2).
Some conclusions could be made at this step of empirical analysis. Statistically number
of people who plan to take mortgage among clusters doesn’t vary among clusters. This means
that despite the fact that some clusters don’t have bad expectations they plan to take mortgage
because it is crucial for them. It could be observed that more significant for people is a trust to
mortgage than to the future because there is differences between second and third clusters. It
could be also concluded that a key role play education and taken mortgage already or in other
words financial literacy that was mentioned in literature.
4.2. Research findings on correspondence of mortgage products to potential
4.2.1 Analysis of mortgage products on Russian mortgage market
There are several types of mortgage products classification: by type of interest rate,
redemption and currency and by type of housing markets. Last one will not be considered in this
study, as the choice is depended mostly on borrower preferences and could vary among clusters.
Moreover some special offers as government subsiding mortgages and lump sum
payment/interest rate options are available in some banks.
Fixed-Rate Mortgage vs. Adjusted-Rate Mortgage
The first type that will be considered is a classification by interest rate. There are two
main possible option here: fixed-rate and adjusted rate mortgages. Fixed rate mortgage remains
the same interest rate during whole loan period, while the ARM changes over time. The ARM is
defined by the market conditions and significantly depends on it, while fixed-rate mortgage
allows the borrower to plan his mortgage expenditures. ARM value could be based of every
market interest rate like LIBOR or MosPrime. However, if overall market rates decline fixedrate option becomes more costly in comparison with adjusted-rate mortgage. In Russia the ARM
is not too popular as it too complicated for Russian borrower, usually this type of mortgages use
borrower with high financial literacy and understanding that such a mortgage could bring them a
profit Just several banks propose such mortgages. In 2016 AHML run adjusted rate mortgages to
increase its popularity among Russian population it consists of fixed components equals 4,9%
and adjusted components that is calculated as average inflation rate over three months.
(http://realty.rbc.ru/) Moreover some banks provide hybrid type of mortgage rate that allows
borrower to pay fixed sum at the beginning and then switch to adjusted rate mortgage. Hybrid
mortgages allow banks to provide to borrower more profitable conditions as it reduce banking
The next type of mortgage products classification is by type of monthly payments:
annuity redemption and differentiated redemption.
Annuity monthly payment provide such method of redemption that the monthly payment
sum remains the same during all loan period/ This sum consists of two components: principal
redemption and interest redemption (formula 4.2.1, formula 4.2.2). While the total sum of
monthly payment remains stable, these two components vary. Payments aimed to principal
redemption increase over time (Figure 4.2).
This lead to monthly reducing in principal debt and, therefore, reducing in interest
A – annuity monthly payment,
K- annuity coefficient,
S – loan sum
Figure 4.2 Annuity monthly payments. Source: www.banki.ru
Differentiated monthly payments evaluate every month. Interest here is paid for
remaining loan. The monthly payment sum decreases over time, while principal redemption
component remains the same and interest redemption component decreases (Figure 4.3, formula
4.2.3, formula 4.2.4, formula 4.2.5, formula 4.2.6).
D=b+i , (4.2.3)
D – differentiated monthly payment,
b – principal redemption component (monthly),
i – interest redemption component (monthly)
b – principal redemption component,
S – loan sum
N – number of payment periods
i=Sn∗I /12 , (4.2.5)
Sn – remaining loan sum,
I – annual interest rate
Sn=S− ( b∗n ) (4.2 .6)
S – loan sum,
n – number of already paid periods
b – principal redemption component
Thus, some advantages of annuity redemption type could be concluded:
Figure 4.3 Differentiated monthly payments. Source: www.banki.ru
usual and equal payments, that ensures stability for borrower and
allows to plan expenditures.
At the beginning the annuity payment sum is significantly lower than in
differentiated payment case.
Bank requirements for borrower who chooses annuity redemption are significantly
Main disadvantages of annuity redemption type are:
1. At the end of loan period monthly payment sum is significantly higher than in
differentiated redemption type.
The overpaid amount is significantly higher than in differentiated redemption
National Currency Mortgage vs. Foreign Currency Mortgage
The majority of mortgages are taken in rubbles, however some bank also offer it in
foreign currency (USD, EUR in the majority). Financial crisis and the dramatic national currency
devaluation significantly undermined currency mortgage: their share in total mortgage lending
volume from 5% to less than 1%, moreover the amount of past-due mortgages has increased
from 2010 year (Figure 4.4, figure 4.5).
Share of foreign currency mortgages in total volume of mortgage lending in Russia (2010-2016)
Share of foreign currency
Figure 4.4 Share of foreign currency mortgage in total volume of mortgage lending in Russia 2010-2016.
Source: www. ahml.ru
Volume of past-due mortgage debt in foreign currency in Russia (2010-2016)
Volume of past-due mortgage
debt in foreign currency
Figure 4.5 Volume of past-due mortgage debt in foreign currency mortgage in Russia 2010-2016. Source:
However, foreign currency mortgages have essential benefits with national currency
mortgages. Firstly interest rates for currency mortgages are significantly lower than for national
currency mortgages. Secondly, this allows to borrower take a higher loan sum, as it is calculated
based on percent of loan payment to borrower income. Thirdly, the overpaid amount is also
significantly lower than that one in national currency mortgages. The main drawback for such
mortgages is that it highly depends on market situation.
Table 4.1 Monthly savings due to lump sum payment/ interest rate option.
Payment/ Interest Rate Option
This option could nor referred to previously discussed classififcations. This option has
been recently introduced by Russian banks in practice. Some banks offers the possibility to
borrower to reduce his initial interest rate in return for lump sum payment that is equal defined
percent of some. For instance, Deltacredit bank proposes a program “Make your own rate”. This
program provides 3 options: “Optima”, “Media”, “Ultra”. The first one offers borrower to reduce
the basic rate by 0,5 points and pay for it 1% of the loan. Program “Media” allows borrower to
reduce Basic interest rate by 1% in return for 2,5% of the loan. Last option provide interest rate
reduction by 1,5% for 4%.
The table below (Table 4.1, table 4.2) demonstrates the amount of money that borrower
could save in annuity monthly payments in comparison with the initial fixed interest rate. (in
case with annuity redemption type) The breakeven point comes over 3 years in average and than
borrower could earn money. However this option isn’t too popular in Russia and is provided just
by several banks. Borrower profit could vary in dependence on interest rate type and redemption
Table 4.1 Monthly savings due to lump sum payment/ interest rate option.
Basic Rate (%)
Reduced Rate (%)
Down Payment – 15%-30%
Reduced Rate (%)
Down Payment – 15%-30%
B a s i c m o n t h l y Reduced
after 5 years
after 10 years after 15 years
Table 4.2 Monthly savings due to lump sum payment/ interest rate option over loan period.
To overview previously discussed mortgage products 13 mortgage leaders banks were
chosen (www.rusipoteka.ru). The majority of banks proposed fixed-rate mortgages in national
currency with annuity type of redemption. Only two of investigated banks offer adjusted-rate or
hybrid-rate mortgages. 4 banks proposed differentiated monthly payments. Only one bank have a
mortgage offer in foreign currency. 5 banks offer lump sum payment/interest rate option (Table
4.3). Down payments do not vary among banks significantly. Average mortgage interest rate
ranges from 11to 17%.
Table 4.3 Mortgage products offered by Russian mortgage leaders banks (2016)
Mortgage Interest rate
Number of Lump
minimum Mortgage sum
down programs paymen
12- 14, 75
13,75-17,5% 10- 30%
Annuity and RUB
Annuity, Diff RUB
11,95 - 19,95 20, 40%
11,9 – 22%
11,4 – 17,75% 10-30%
11,9 – 16%
4.2.2. Suggested mortgage products for consumer profiles
On the basis of investigated literature and received consumer profiles it could be
identified now target audience of one or another mortgage product.
Pessimists demonstrate low trust neither the future neither the mortgage. They believe
that their future income will reduce over time, therefore the most appropriate for such type of
borrower will be such products that will ensure them stability. In addition these borrowers have
low level of education and, therefore, have low financial literacy, thus too complicated mortgage
product could evoke frustration and may increase mistrust to mortgage. Therefore the best
possible options for them are the following:
Fixed-rate mortgage, as the interest rate remains the same over loan
Annuity type of monthly payment, as it allows to plan mortgage
expenditures and budget. Moreover, this product is intuitively more understandable and
commonly used. In addition, low income pessimists would be appropriate for
differentiated redemption type as it provide stronger requirements for income.
National currency mortgage. Under current crisis foreign currency, namely
for such type of borrower, is senseless (Figure 4.6).
We suggest to avoid proposition for pessimists lump sum payment/ interest rate option as
it could be difficult to understand and require initial lump sum payment, that is impossible with
low level borrowers.
Pessimists are expected to demonstrate high involvement in decision-making process, as
mortgage is a long-term, high risky and costly purchase for them. Therefore, they would tend to
extensive problem solving, spend a lot of time for information searching and put a lot of efforts
to evaluate alternatives. Therefore, banks need to provide deep, transparent and detailed
information not only through personal contact, but through Internet too.
Future skeptics are highly educated young people in the majority. They, however, don’t
have good expectations about future and believe that their income wouldn’t increase in the
nearest future. For such borrowers, lump sum payment/interest rate option could be excellent
option, as it could bring them benefits in the future and significantly reduce their monthly
payments. Moreover, for future skeptics, of course if they satisfy banking requirements, variant
could be differentiated monthly payment, as they reduce over time and total overpaid sum is
significantly lower than with annuity payment. In addition, considering the fact that future
skeptics are highly educated, these products would be understandable for them. Foreign currency
and adjusted-rate mortgages are not appropriate in this case, as they do not ensure certainty,
confidence and stability. Future skeptics expected to demonstrate medium involvement and
limited problem solving, as they are more aware of what they want and what the mortgage is,
therefore they will spend less time for information searching and personal contact with banking
staff are more important for them (Figure 4.6).
Mortgage skeptics do not trust mortgage, but have good expectations about future. Like
pessimists mortgage skeptics have a low level of education, but have medium or in some cases
high income. Best mortgage choice for them could be the following:
Annuity monthly payment or differentiated monthly payment. It is
difficult to make exact suggestion which redemption type would be the most appropriate
for mortgage skeptics. On the one side, annuity type is more explicable and
understandable, but on the other side, differentiated redemption could be convenient as
such borrowers have enough income to pay for monthly payments at the beginning. So,
banking staff needs to pay attention to such a borrower and try to understand his
psychology through personal contact.
Adjusted-rate mortgage could be good option for them, as they are
confident about their future, and moreover, it could brings benefits for them. However,
detailed and transparent explanations of all procedures are required.
National currency is the best choice under current crisis. However, some
borrowers from this cluster could have earnings in foreign currency or be opened to take
mortgage in currency even under such conditions; therefore, foreign currency mortgage
could be also an option to propose (Figure 4.6).
Mortgage skeptics are expected to demonstrate both high and medium involvement in
decision-making process. From the one point of view, for them mortgage is less costly and risky
than for pessimists, from the other point of view, they are not financially educated and, therefore,
would spend a lot of time for information searching. Extensive problem solving is more probable
for them, so this profile require transparent and detailed information from different sources.
Optimists with high income, high financial literacy may be seek mortgage options that
will bring them benefits. They have already a mortgage and do not have high necessity for
housing conditions improving. Therefore, following mortgage products could be recommended
Differentiated type monthly payments as they have enough money to pay
higher sum at the beginning and furthermore, this could bring some saving for them in
Adjusted-rate mortgage as pessimists are confident of their future and this
mortgage is less costly than fixed-rate mortgage, that could attract profit-seeking
Foreign currency mortgage could also be appropriate for them as some
borrowers for this profile could have earnings in foreign currency (Figure 4.6).
Optimists are expected to demonstrate limited problem solving and may be sometimes
routine response behavior, as this purchase for them is less costly and risky. They would spend a
little amount of time for information searching and would expect to receive detailed information
about which mortgage product is the best option for them.
Summary of chapter 4
To sum up research results we now could build new stimuli-response model (Figure 4.6).
This model moves from borrowers black boxes toward suggested products in dependence of
borrower profile particularities. This in its turn influences borrower memory and learning
ensuring positive experience. Positive experience lead to increasing borrower loyalty, positive
“world-of-mouth” that in long term would lead to transforming potential borrowers, who now do
not plan to take mortgage, in real borrowers. In long-term perspective, applying received results
in practice, would lead to reducing in past-due debts, increasing banks profitability, as mortgage
borrower could become client of other banking services and increasing in mortgage lending
Understanding consumer behavior and effective applying this knowledge in real banking
practice will lead to changes in borrower perceptions, increase trust to financial institutes and
financial literacy. Therefore, stimuli-response model would change along with consumer black
box would be discovered more and more (Figure 4.6).
Motivation – high need for
housing conditions improvement
Perception: low trust to mortgage
and to future
Learning: didn’t have a mortgage
F. Skeptic Psychology:
a lot of family members
Motivation – need for housing
high trust to mortgage
Learning: didn’t have a mortgage
F. Skeptic DM
F. skeptic characteristics:
Age – 22-30
Place: easy to
access to site,
- Limited problem
- Focus on option
that will fulfill his
Mortgage Skeptic Black Box
M. Skeptic Psychology:
Motivation – low need for
housing conditions improvement
Perception: low trust to
mortgage, high trust to future
Learning: didn’t have mortgage
M. Skeptic characteristics:
Normal or high income;
M. Skeptic DM
- High /medium i.
option that will
fulfill his needs
Optimist Black Box
M. Skeptic Psychology:
Motivation – no need for housing
Perception: low trust to
mortgage, high trust to future
Learning: have a mortgage
- Limited/ routine
M. Skeptic characteristics:
- Spend little time
5. DISCUSSION AND CONCLUSIONS
Age - > 30 years
Place: easy to
access to site,
very detailed well
Place: easy to
access to site,
very detailed well
received findings correspond to previously
analyzed literature related to consumer behavior under crisis. Theoretical and practical
contributions of this investigation will be provided. Finally limitations of the study and
directions for further research will be discussed.
5.1. Discussion of empirical findings in context of consumer behavior studies
The research goal of this study was to link mortgage products available on Russian
market with potential borrowers segments in dependence on their behavioral "black boxes". To
reach the goal two research questions were stated. The first research question is:
1. What are profiles of potential borrower in Russia?
To answer this research question potential borrowers were divided into 4 groups in
dependence of their perceptions of mortgage and future (Figure 4.1). Some previous studies was
also conducted segmentation of customers (Aymaletdinov, 2013; Pandelica, 2008 ). This study
aligns with Pandelica (2008) framework that identified consumer profiles in dependence on risk
attitude and risk perception. However this master thesis narrows these dimensions to mistrust to
future and mistrust to mortgage and moreover ensures investigation on particular market.
Identified profiles in some ways correspond to that of Pandelica (2008): cautious consumers as
mortgage skeptics have good expectations about future income; panicked consumers with high
both risk perception and risk attitude have low income as pessimist identified in this study (Table
Aymaletdinov (2013) analyzed potential borrower pre-purchasing behavior in dependence
of decision-process time through segmentation of potential borrowers in 4 factors. Pragmatic
borrowers in his study as mortgage skeptics and pessimists need lot of time to make a decision
and require providing of detailing information (Figure 4.6).
Research findings align with traditional potential borrower estimation and also involves
such variables as age and income (Skiba, Loyko , 2012). However this study investigates
potential borrower psychology and decision-making process bringing high academic value.
The second research question is:
2. What are products that correspond to potential borrower profiles?
To answer this research question, firstly, Russian mortgage market overview was
conducted (Table 4.3). Then, basing on particularities of one or another potential borrower
profile, logic and previously discussed literature about decision-making process mortgage
products were suggested to identify profiles (Figure 4.6). It is assumed that different profile
potential borrower will demonstrate different type if involvement in decision-making process
and their problem solving will also vary. However, in the literature it is stated that on high risky
mortgage market only high involvement and extensive problem-solving could be possible. The
assumption was made as different profiles have different intensity of perceived risk and different
income. In comparison with pessimists optimists are expected to demonstrate low involvement in
decision-making process and more limited problem solving.
Considering existing USA literature dedicated to borrower mortgage product choice
analysis insignificant similarities could be detected as previously only buying behavior on
mortgage market was investigated (Statman, 1982; Alm and Follain,1984; Stanton and Wallace,
1999; Campbell and Cocco, 2003; Paiella, M., Pozzolo A.F., 2007; Koijen et al.,2009). Therefore
this study cover significant gap in consumer behavior theory.
It was discussed above under crisis people tend to postpone their major purchases and
tend to save money. (Pikturnien, 2009; Robles et al., 2002; Zurawicki and Braidon, 2005; Leller
and Schewe, 1974; Engel, Kollat and Blackwell, 1993). This investigation, however,
demonstrates that this rule doesn’t work on Russian mortgage market. Despite the fact, that the
majority of respondents do not believe that current market, generally, is favorable for big deals,
the amount of people who plan to take mortgage in the nearest future is almost the same among
clusters. Only, optimists start to save money last years. Such result could be explained by the fact
that the majority of such respondents have a high need for housing improvement.
This research shows the importance of financial literacy in mortgage market that
corresponds to previous findings (Kivetz, 2000; Meidan, 1996). People with low level of
education and those, who have not ever have a mortgage previously, demonstrate level trust to
mortgage. It also proves that age is that personal factor, which has significant influence on the
consumer behavior on mortgage market: age varies between some clusters.
Necessity for housing conditions improvement, as it was stated in the literature, is the
most significant factor that makes people to take a mortgage loan even if they have mistrust both
to future and to mortgage (Aymaletdinov, 2013).
Research findings go along with the consumer behavior under crisis theoretical
framework, which claims that under crisis risk perception and risk attitude provoke mistrust in
companies and future, which in their turn define patterns of consumer behavior. (Pandelica, A.,
2008) This proves that cultural level of consumer, economic crisis in our context, affect
psychological consumer layer that support main assumption of consumer behavior theories.
However, it contradicts to the empirical Russian investigation, where findings suggest
that population have good expectation about future (Aymaletdinov, 2013). The majority of
respondents believe that in the nearest future positive tendencies in Russian economy and on
labor market are not expected.
5.2. Theoretical contribution to consumer behavior theory
This master thesis provides an investigation of consumer behavior in mortgage market in
Russia under crisis conditions. It has strong theoretical contribution to existing consumer
Firstly, it covers the first gap, stated in the introduction: lack of empirical studied that
explain consumer behavior (Pham, 2013). The majority of currently existing studies consider the
buying behavior, focusing on the acquisition stage of consumer behavior. However, for business
more important is to understand consumer behavior. This research is focused on analysis of
potential borrower profiles. It takes into consideration also people who do not plan take a
mortgage in the nearest future. It is assumed that these people could become borrowers or they
have necessity to take a mortgage, but do not have good beliefs about mortgage lending in
Secondly, previously studies related to consumer behavior on mortgage market, which, in
generally, are limited by following patterns of buying behavior: choice between banking
products or choice between different banks investigated (Statman, 1982; Alm and Follain,1984;
Stanton and Wallace, 1999; Campbell and Cocco, 2003; Paiella, M., Pozzolo A.F., 2007; Koijen
et al.,2009). This master thesis aimed to analyze potential borrower profiles and then provide
recommendations which products for which profile could be suggested.
Thirdly, this investigation covers the lack of empirical studies conducted on macro level
(Pham, 2013). Previously examined literature is dedicated mostly to understanding consumer
behavior in dependence on his beliefs, motivation, perceptions about product or service, personal
factors. In this framework crisis, in other words final cultural layer was taking into account.
Moreover, it provides investigation conducted on Russian market, overcoming lack of
cross-cultural studies and studies in emerging market. Every market has its own particularities,
however, consumer behavior researchers tend too overgeneralize received finding for every
market, that is impossible (Pham, 2013)..
In addition, this thesis investigates consumer behavior in mortgage market in specified
and narrow dimensions: trust to future and trust to banks, there are no previously literature on
this very topic.
5.3. Managerial implications of potential borrower profiles for Russian banks
In accordance with previous analysis of mortgage market in Russia some banks provide
only fixed-rate mortgages, but offer a possibility to choose between annuity and differentiated
monthly payments (Table 4.3). Potential borrowers of such banks could be future skeptics.
Therefore for these banks it is crucial to provide well-established personal contact to provide
benefits of suggested mortgage products (Figure 4.6).
Those banks which offer different types of mortgages in dependence of interest rate, but
have only annuity mortgage programs (Table 4.3) need to focus also on well-established personal
contact and also provide clear, transparent and easy to access information through other
Those banks which offer lump sum payment/interest rate option expect to attract future
skeptics and optimists (Table 4.3, figure 3.7). Both types of potential borrower profiles need for
detailing and good explanation why this very product will fulfill their needs.
Potential clients of the only bank with foreign currency mortgage could be mortgage
skeptics and optimists (Table 4.3, figure 4.6). These borrowers could demonstrate the same
behavior and involvement in decision-making process as well as mortgage skeptics may
demonstrate high involvement and extensive problem solving. Therefore, such banks need to pay
attention to different channels.
Banks that provide only classical mortgage products as fixed-rate and annuity mortgages
could be the choice of pessimists who require very detailing information about all products and
nuances (Table 4.3, figure 4.6).
To sum up some general recommendations could be provided expand and modify the
process of borrower profile consideration: pay attention to education, motivation, financial
literacy not only to calculate the loan sum. Learn banking staff to do this: trainings, deeper
surveys. Ensure the information transparency through different channels: internet, personal
Therefore, taking into consideration borrower characteristics to understand potential
behavioral patterns is crucial for banks not only to stay competitive on highly competitive
mortgage market but also to ensure increase volumes of mortgage lending in Russia in long-term
perspective. To achieve it some recommendations could be developed, except those provided in
To learn banking staffs how to deal with particular borrower profile. Some
special trainings could be provided. In addition, bank could conduct its own more deeper
survey among clients or employees to narrow results achieved in this research.
To provide transparent information. It touches not only contracts or
detailed information given through personal contact but also require easy to access and
transparent information presented on the banking site or by telephone consultation.
To expand borrower consideration taking into account subjective
assessment of income, number of family members living together, level of education and
5.4. Limitations and further researches
There several limitations those create possibilities for further researches. Most of them
are related to the exploratory research design. The first one is related to sampling method, as
non-probability sampling method significantly undermines the validity and reliability of
research. Therefore, it is necessary to conduct more deep and structured survey in further
researches with bigger number of respondents.
Moreover, it is necessary to understand how consumer will behave under normal
conditions as it was proved that crisis significantly affect consumer behavior in mortgage market.
Furthermore, it will be interesting to build a regression model and determine what factors
determine the consumer decision to take a mortgage beyond the obvious ones as need to housing
improving. We made our research considering factors as given from previously discussed
literature, however, taking into account Russian mortgage market particularities, made
assumptions could be stated in the wrong way.
This study mostly was focused on psychology component in potential borrower “blackbox” making conclusions of decision-making characteristics as subjective assumptions. So,
another direction for further research could be advanced investigation of potential borrower
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amount of variables. Financial literacy here consists only of 2 component to get more reliable
result more variables could be included to detect financial literacy factor.
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APPENDIX 1. Questionnaire on consumer behavior in mortgage market
1. Do you consider the conditions of the Russian market today are suitable for major purchases
Can not say
Please indicate whether you agree or disagree with the following statements (1Absolutely , 2 - Partly Disagree, 3 – Can not say, 4- Partly Agree, 5 - Absolutely Agree)
The last few years you try to lay by for a rainy day the
part of your personal income.
You expect the increase of Your personal income in the
next 5 years
You trust Russian banks
Mortgage is an affordable way of buying housing in
Russian banks on the mortgage market are characterized
by transparency, completeness and easy accessibility of
the information about the products and services they offer
In the nearest future it is reasonable to expect the positive
trends on the labor market
In the nearest future it is reasonable to expect the positive
trends on the Russian economy.
From the legal point of view the borrower on the
mortgage market in Russia is completely protected.
Select your gender:
Select your age:
Please select your age
How do you define the total income of your family? (1 – insufficient, 5- more than
Select your education level:
Select your place of residence
own living space (apartment, room, so on
Indicate the number of family members residing with You on the same living area
(if You live alone select 0)
Rate the need to improve housing conditions in the nearest future?
As soon as
Can not say
Not high need
Do you take out (took out in the past) the mortgage?
Do you plan to get the mortgage in the next 5 years?