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Counteroffers and Price Descrimination in Mortgage Lending

Author

Listed:
  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR))

  • Florentina Paraschiv

    (Zeppelin University, Chair of Finance; Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen, Institute for Operations Research and Computational Finance)

  • Endre J Reite

    (NTNU Department of International Business)

Abstract

This study analyzes price discrimination and household switching in the residential mortgage market. Analyzing a unique proprietary micro dataset from Norway, we examine what influences a bank’s choice to counter an offer from a competing bank and the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the concurrent best rate offered to new customers by the current bank. The estimates show that a bank employs internal information to decide how to counter a competing offer and that current clients pay around 20 basis points more than new customers. We surmise that new regulations and digitalization enhance transparency, and can reduce the rate differential. However, introducing new banking products and changes in the timing of rate differentiation —from immediate upfront to gradual over time —may be used to keep the rate differential constant.

Suggested Citation

  • Steven Ongena & Florentina Paraschiv & Endre J Reite, 2021. "Counteroffers and Price Descrimination in Mortgage Lending," Swiss Finance Institute Research Paper Series 21-67, Swiss Finance Institute, revised May 2023.
    • Handle: RePEc:chf:rpseri:rp2167
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    Cited by:

    1. Reite, Endre J., 2022. "Information asymmetry between banks, rent extraction, and switching in mortgage lending," Finance Research Letters, Elsevier, vol. 50(C).

    More about this item

    Keywords

    Mortgage lending; Financial regulation; Consumer protection; digitalization; Price discrimination;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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