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Housing loan rate margins in Finland

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  • Putkuri, Hanna

    ()
    (Bank of Finland Research)

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    Abstract

    This paper examines how housing loan rates are determined, using data on new housing loans in Finland. Finland is an example of a bank-based euro area country where the majority of loans are granted at variable rates. The paper extends the earlier interest rate pass-through literature by taking explicitly into account the changing of lending rate margins. A standard lending rate pass-through model, empirically specified as an error-correction model, is extended with variables predicted by a theoretical bank interest rate setting model. The results show that, since the mid-1990s, short-run movements in housing loan rates can be largely explained by changes in money market rates, and that long-run developments have also been affected by less volatile cost and credit risk factors. The roles of loan competition and capital regulation are also considered, but these effects are more difficult to identify empirically.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/1010netti.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 10/2010.

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    Length: 39 pages
    Date of creation: 28 Apr 2010
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2010_010

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: housing loan; lending rate; lending rate margin; error-correction model;

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