Abstract:
. Introduction
Housing is an indispensable human need. It
is predictable as a basic need for shelter. It is
apparent that habitable housing contributes to
the health, efficiency, positive social behavior
and general welfare of the populace, which
uplift the living conditions of the community. In
present society, housing has a value beyond the
essential need for human shelter. As an upshot
many agencies have moved to work in this field.
This has made for a rapid transformation in the
household sector in Sri Lanka. Recent studies
expressed concern that substantial numbers of
bank customers, who enter into complicated
financial contracts such as mortgages, are financially illiterate and fail to understand crucial
factors in decision-making, Engin (2011). Further,
for most governments the availability of sufficient
but basic housing for all is often stated as a priority for enhancing the social needs of the society.
For a typical house-owner, the house is a major
asset in his portfolio and for many households
the purchase of a house represents the largest
(and often only) lifelong investment and a store
of wealth, Goodman (1989). Housing represents
a large proportion of a household’s expenditure
and takes up a substantial proportion of lifetime
incomes. It has been noted by Rose (2011) that
for most Americans, the purchase of a home is
the greatest and most important financial decision made during their life time.
A central purpose of financial markets is to
redistribute risk in an optimal manner. However,
external influences such as local currency depreciation, oil and gold price increases plus some
internal factors, including higher levels of interest
rates, have made the financing of housing a major
challenge for the country. It needs attention at a
policy level. The provision of housing services
depends mostly upon a well-functioning and
affordable housing finance system. The housing finance process is very complicated and the
beneficiary has to meet a set of difficult criteria
which make it harder to meet the requirements
for a housing loan. Further, the interest rates on
loans are unaffordable for the general working
class of people and they went up to nearly 20%
per annum in the recent past. This rate has shown
vast fluctuations from 20% to 12% in the period
2009-2012 indicating the instability of the market.
This rate fluctuation creates a number of issues
for lenders and for borrowers in relation to their
financial management. It has been mentioned
by Vandell et al. (1985) that understanding the
forces that drive mortgage default is a necessary
prerequisite to appropriate pricing of default in
the mortgage market. This study is focused on
the demography of defaulting borrowers and
provides valuable insight into the demography
of mortgage borrowers.