Price-setting and price dispersion in the Dutch mortgage market
AbstractWe analyse empirically price-setting in the Dutch mortgage market, using information on about 124,000 Dutch households and 54 mortgage lenders over the years 1996-2001. For a narrowly defined set of mortgages (which have a fixed lending rate for ten years), the range of the lending rate between lenders varies between 0.86 and 1.24 percentage points over these years. Prices remain dispersed across lenders, even after controlling for the characteristics of the household and the municipality (1 percentage point). This may imply that there is imperfect competition among lenders, so that some of them can develop market power. Furthermore, we find that lenders with lower costs have lower lending rates, accounting for a maximum change of the lending rate by 0.076 - 0.16 percentage point. Finally, we find that the price dispersion of mortgages sold by banks is smaller than that of mortgages sold by life insurers (0.60 versus 1.28 percentage points). This difference may be due to lower agency costs for banks than for life insurers. Another likely explanation is that the market segment for banks is more transparent than that of insurance companies.
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Discussion Paper with number 21.
Date of creation: Sep 2003
Date of revision:
Other versions of this item:
- Wolter H.J. Hassink & Michiel van Leuvensteijn, 2003. "Price-setting and Price Dispersion in the Dutch Mortgage Market," Working Papers 03-07, Utrecht School of Economics.
- D4 - Microeconomics - - Market Structure and Pricing
- D8 - Microeconomics - - Information, Knowledge, and Uncertainty
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
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