Since housing is expensive, the availability of housing finance is equally important. Today, home financing offers financial assistance to homebuyers when purchasing their dream home. There are various institutions which offer housing loans that prospective borrowers can access such as insurance companies, state housing corporations/agencies or mortgage institutions. With rapid change and more sophisticated homebuyers, it has become very important that financial institutions determine the factors which are pertinent to the homebuyer in selecting a mortgage home loan provider. To establish the potential capacity to pay for the desired home, prospective buyers were asked to estimate the average purchase price, the deposit required, the deposit that they could afford as well as any savings that could be added to the funding package. Moreover, homebuyers have to take into consideration in many dimensions such as the down payment, maturity of the contract, repayment structure, the ability to refinance, the possibility of being subject to borrowing constraints, and the evolution of economic variables such as interest rate, inflation, house appreciation rate and income growth.(Babakus, 2004)
Mortgage loan is a source of finance in home purchases and it was the popular choice where the property was used as the main sources of collateral secure the loan. In the United States, according to the Residential Finance Survey in 2001, roughly 97 percent of the housing units where purchased through mortgage loans while only 1.6 percent were purchase in cash. According to data presented in the Mortgage Market Statistical Annual, the market share of non-traditional mortgage contracts has increased since 2000. As such, more financial alternatives are offered to the public and at the same time there are more options for Malaysian bank customers to choose from. The mortgage home loans definitely provides an option as an alternative to interest based ones for a Malaysia bank customers to choose the best financing package for their dream home.
As a result, exploring such information would help service providers to identify appropriate marketing strategies needed to attract new borrowers. The choice criteria are most importance for customers and determine their decision of cooperating with the attempts to deliver offering, which will motivate customer choice. Therefore, understanding the service consumer is to understand the unique challenges they face as they attempt to make decisions and evaluations of their service purchases for mortgage home loan is important (Grace and O’Cass, 2003). This paper attempts to deepen understanding about consumer decision-making when selecting a service provider and what criteria are of most importance.
Research Question, Aims and Objectives
The aim of this research is to identify the choice criteria that influence borrowers for mortgage home loan. The present study will focus on the following research question and research objective:
What are the key choice criteria for the selection of mortgage home loan provider in Malaysia?
To find out demographic information of Malaysian home loan borrowers.
To examine major choice criteria that influence mortgage home loan selection.
To determine the level of customer satisfaction of home loan providers.
To recommend the appropriate strategy for home loan providers to market its mortgage loan products.
In this competitive world, banks offer their various home loan packages in the market. Therefore, homebuyers have choices on selecting a suitable home loan package for themselves. Homebuyers who are interested on the home loan packages need to contact to banks or mortgage sales officer or through banks in order to get information before they can make their decision when choosing appropriate home loan package which meet their requirements.
Mortgage loan services
In 1970s, Ginnie Mae (a government corporation) and Fannie Mae (a government chartered shareholders corporation) began the trend of securitization of home mortgages. By definition, mortgage loans or home loans are secured by real property and provide a schedule of payments of interest and repayments of the principal to a bank (Tse, 1997). Besides that, mortgage loans provide great volumes and accuracy of customer information (Kessler, 2001).The mortgage home loan involves a deliberately planned financial behaviour with a risk of unpredictable ability to make long-term repayment for a huge amount of debt (Sullivan, Warren, & Westbrook, 2000).
In general, banking institutions in Malaysia offer two types of mortgage loans, namely, conventional and Islamic. The commercial banking sector in fact has been getting more significant in financing individual home buyers with individual commercial banks competing severely for mortgage business, as individual housing loan was generally regarded by the banks as less risky (Shen, 2000).
Borrower’s selection process
Each homebuyer has their different purchase criteria for mortgage home loan. A variety of factors that can potentially affect the mortgage home loan selection such as demographic characteristic of borrowers, interest rate, service quality, professional advice, easy approval of home loan application, reputation of loan provider and recommendation from friends and family members.
Demographic characteristic of borrowers
Demographic characteristics have demonstrated homebuyer’s attitudes towards mortgage home loan as well. Boyd et al. (1994) argued that selection criteria of banks and how these differ according the customers behavioural and demographic characteristics. Mortgage home loan attitudes are mainly influenced by gender, age, and income (Devlin, 2002). Moreover, women seemed to be having greater impact on bank selection decisions as they achieved greater social liberation (Anderson et al., 1976). In contrast, men are apparently more inclined to acquire home ownership through mortgage loan than women (Ajayi, 1990). On the other hand, older borrowers preferred bank locations close to their home, while the younger ones were interested in the variety of service (Kaynak et al, 1991). Beside that, high income household attached greater importance to opening hours and friendliness of staff and low income households relied on favourable publicity (Boyd et al.,1994).
Rate of interest has always been featured as one of the important considerations in explaining the saving behaviour of individuals. Base Lending Rate (BLR) is the lowest rate charged by banks on mortgage loans in Malaysia. Changes in the rate will have a direct relationship with the credit availability to borrowers. Increase in the rate means higher cost of borrowing to customers and also serves as an indicator whether they can easily obtain financing for their needs as well as their capacity to pay back the loan (Haron, 1997). For example, when there is an increase in the BLR, the interest rate on loan will also go up, and borrower’s repayment would be higher. Khazeh and Decker (1994) surveyed recent homebuyers; they found that relatively few home buyers claimed to have chosen a mortgage lender on the basis of interest rate charges. Moreover, Breslaw et al. (1996) postulate two possible behavioural models of consumer behaviour for choosing a mortgage. The first occurs when payment constraints become strongly binding and the second occur where the monthly payment constraint is less binding and a borrower has the latitude to choose a longer term and a shorter amortization.
Bank service quality is the most important element that customers consider in order to select their mortgage providers and establish a long-term relationship with them (Lymperopoulos et al.,2006). Service quality is the consumer’s judgment about an entity’s overall excellence or superiority. It is form of attitude, and results from a comparison of expectations to perceptions of performance received (Zeithaml, 1987). They are mainly interested in the way the financial service is delivered (McKechnie, 1992). And particularly in the bank’s opening hours, provision of information, and ability to focus on customers’ needs (Holmlund and Kock, 1996). Avkiran (1999) measured the dimensions of bank service quality and came up with different discriminating factors, namely staff conduct, credibility and access to teller services. Staff conduct refers to responsiveness, civilised conduct and professional image of branch staff, while credibility refers to rectifying mistakes, and keeping customers informed. Access to teller service refers to the adequacy of number of staff serving customers throughout business hours and during peak hours.
Professional advice is the most important factor for all borrowers, but is also more important for young financial services consumer (Devlin and Ennew, 2005). Some homebuyers do not understand the nature of mortgage instruments (Mills and Gardner, 1994) and therefore the professional advice of intermediaries also affected individuals when selecting a mortgage provider. For example, the service officers understand the needs and wants of its customer, this is because some of the borrowers, regardless of educational level, could not determine which mortgage type had higher financial cost (Lino, 1992). In addition, there is a lack of knowledge on the borrowing behaviour, preferences and experiences of low-income households with accessing housing finance from the commercial banking sector in South Africa (Hendler and Pillay, 2001,p.2). Therefore, it is important to understand that the professional advice that can be influenced the intention the choice for mortgage home loan in Malaysia. As a result, today, retail customers require information, comprehensive advice, honestly, consistency, responsiveness, commitment and value for money (Shelton, 1995; Leach, 1995).
Easy approval of home loan application
Poor or low and middle income borrowers often face difficulties to meet the requirement of bank in Nigeria (Olufemi, 1993;Onibokun, 1985; Falegan, 1985). This is because some borrowers cannot meet some lenders requirements such as collateral, down payment, service charges, repayment schedule and mortgage protection policy (Smith et al,1997). Dymski (1999) noted that because of systematic institutional discrimination, large, consolidated banks do not serve minority and low-income customers well, and certainly not as well as smaller banks and non-bank financial institutions Therefore, approval for home loan application can be influenced the intention the choice for mortgage home loan.
Reputation of loan provider
Reputations play a major role in the selection process (Haron et al., 1994). Interestingly, Devlin and Gerrard (2004) presented an analysis of trends in the relative importance of bank choice criteria. In UK, noted the importance of the impact of advertising by building societies on mortgage choice (Leece,1995). Home loan borrowers satisfaction which mainly focused on the bank’s name, image, confidentiality and reputation ( Erol and El- Bdour, 1989).Therefore, the reputation have retained their degree of importance in home loan borrowers mind.
Recommendation from friends and family members
The importance of recommendations or word-of-mouth in the formation of attitudes in a service purchase decision making context has been showed in many studies (Wangenheim and Bayon, 2004; Grace and O’Cass, 2003). The researcher provided findings from 7,033 consumers and showed that the influence of recommendations is now the important choice criteria. Sometimes, people are influenced by the recommendation of family member, spouse or friends, with respect the choice of mortgage home loan selection and also the home loans is mainly influenced by customers’ previous experience with the provider (Ford and Jones, 2001). As a result, mortgage home loan borrowers are encouraged to obtain information about experience attributes from people who have actually used the service (Babakus et al.,2004).
Overall, it is important to address the criteria in order to make sure the service providers are able to come up with attractive package of mortgage services providers to their prospective loan borrowers. As a conclusion, the factors that will affect choice criteria for mortgage home loan selection in Malaysia by home loan borrowers should be concern and investigate deeply.
Indicators Independent Variable Dependent Variable
Gender, age, income
Payment constraints, monthly payment constraints
Staff conduct, credibility and access to teller services.
Mortgage home loan selection
Require information, comprehensive advice, honestly, consistency, responsiveness, commitment and value for money
Collateral, down payment, service charges, repayment schedule and mortgage protection policy (al,1997Dymski (1999) noted that because of system
Easy approval for home loan application
Reputation of loan provider
Bank’ name, image advertising by building societies
Family member, spouse or friends
From the conceptual framework the following hypothesis is developed to be tested in this study:
Hypothesis !: Mortgage home loan selection are mainly influenced by demographic characteristic
Hypothesis 2: Interest rate is positively related to mortgage home loan selection.
Hypothesis 3: Service quality is positively related to mortgage home loan selection.
Hypothesis 4: Professional advice is positively related to mortgage home loan selection.
Hypothesis 5: Easy approval for home loan application is positively related to mortgage home loan selection.
Hypothesis 6: Reputation of loan provider is positively related to mortgage home loan selection.
Hypothesis 7: Recommendation of loan provider is positively related to mortgage home loan selection.
After the literature review, quantitative research methods will be implemented to meet the research objectives of this study. In particularly, a survey was designed and conducted in Selangor states of Malaysia. In order to conduct a self administered surveys and questionnaire will be used as a research instrument. Self administered surveys are used to collect quantitative information about items in a population. A survey may focus on opinions or factual information depending on its purpose, and many surveys involve administering questions to individuals.
The study presents primary and secondary sources such as articles, journals, searching and browsing through the internet web pages, internet websites and online articles and journals to seek for supplementary information. Data will be collected by self-administered questionnaires of Malaysia banks customers in Selangor. A total of 200 bank customer will be targeted and responded to a survey addressing the choice criteria for mortgage home loan selection.
A self-administered survey is one in which the respondent completes the survey on his or her own, it is a traditional “paper and pencil”? survey and is a group self-administered survey and drop-off survey whereby respondents fill out at leisure. There are some advantages for this self-administered survey which can help to reduce cost by eliminating the need for an interviewer or an interviewing device, respondents have the controlled pace at which they answer, no interview-evaluation apprehension. Besides that, they can be administered in large number all at the same place and time.
There are some strengths and weaknesses of the survey. The survey is useful in describing the characteristics of a large population. Consequently, very large sample are feasible, thus making the results statistically significant even when analyzing multiple variables. In contrast, many respondents will refuse to fill the questionnaires and some respondents will not cooperate in filling the questionnaires. On the other hand, it will be difficult to ensure that a large number of the selected sample will reply.
A non-probability, convenience sampling will be implemented for the research. Convenience sampling refers to the procedure of obtaining units or people who are most conveniently available. The convenience sampling is used to obtain a large number of completed questionnaires quickly and economically. With this method, it only samples those who are available and willing to participate in the survey. Before the questionnaire was finalized, a pilot study will be conducted in order to test the appropriateness of the questionnaires and to provide clarity and simplicity to the potential respondents. Apart from that, it also aims to ensure a presentable and quality questionnaire is produced. Testing effects can be attributed to changes in subjects that arise from the influence of the testing process itself. It is possible that a pilot test can sensitise or bias a subject’s behaviour and result in an improved performance.
Both open and closed-ended questions will be used in questionnaires. An open-ended question is a question without any prompting in regard to the range of answers to be expected, and writes down the respondent’s reply verbatim. A line or space is left for the respondent to write their own answer. Furthermore, closed ended questions will be used in preparing the questionnaire use to overcome some open- ended questions which is offers the respondent a range of answers to choose from. A range of answers is set out in the questionnaire and the respondent is asked to tick the appropriate boxes.
Finally, In order to test for difference in importance of choice criteria across groups of the various measures, the data will be collected and subsequently by different statistical techniques provided by SPSS for window package version 16.0.
Discuss of access and ethical considerations
In order to gain the information for the research, I decided that I specially did not know the identity of respondent such as name, age, identity card number, mobile phone number and home address during the interview. I felt that honestly assuring anonymity would increase the likelihood and accuracy of responses. In the few instances in which respondents volunteered their name, such information was immediately obliterated on the questionnaires. The research will be take place in safe environment to ensure the personal safety. All interviews will be conducted in the public place.
Furthermore, I will only ask what is needed for the research but not include other question not related to my research. The information respondents give must be kept at least confidential. Besides that, other important research ethic is that experimental participation must be voluntary. All participants will be offered the opportunity to take part and it will be voluntary the decision to whether accept.
Finally, a brief description of the purpose of the project will be provided in the questionnaire to make sure all participants will know they are involved with the research. This is known as informed consent. Participants will be required to sign a consent form, accepting to take part in the research voluntary.
The sources of finding will be used to complete the research. The resources are used in this research included time and cost. The printing cost of RM450 will be used to print questionnaires survey form. The estimate time for complete this research is around six months that is from February to May and September to December 2010.