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What Drives the Gross Margins of Mortgage Loans? Evidence from Switzerland

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  • Andreas Dietrich

    (Lucerne University of Applied Sciences)

Abstract

This paper empirically examines the determinants of margins for a unique dataset of 1,190,811 mortgage loans with fixed interest rates of eight Swiss banks over the period from 2001 to 2011. Our margin determinants include loan-specific factors as well as external and bank-specific characteristics, some of which have not been considered in previous studies. Our results reveal that loan-specific factors such as repricing, representing the credit period until the interest rate is newly set, and loan volume explain a substantial part of our dependent variable. Furthermore, external factors also significantly affect mortgage loan margins. Mortgages granted in cities have lower interest rates than those allocated in rural areas. The role of competition is also considered and the findings show that margins are higher in less concentrated and thus less competitive markets. Declining mortgage loan margins can be further explained by means of increasing operational efficiency and the mortgage growth strategy of a bank.

Suggested Citation

  • Andreas Dietrich, 2016. "What Drives the Gross Margins of Mortgage Loans? Evidence from Switzerland," Journal of Financial Services Research, Springer;Western Finance Association, vol. 50(3), pages 341-362, December.
    • Handle: RePEc:kap:jfsres:v:50:y:2016:i:3:d:10.1007_s10693-015-0229-7
    DOI: 10.1007/s10693-015-0229-7
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    Cited by:

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    2. Stefanie Behncke, 2023. "Effects of Macroprudential Policies on Bank Lending and Credit Risks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(2), pages 175-199, April.
    3. Nguyen, James & Parsons, Richard & Argyle, Bronson, 2021. "An examination of diversification on bank profitability and insolvency risk in 28 financially liberalized markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 29(C).

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    More about this item

    Keywords

    Commercial bank; Net interest margin; Mortgage loans;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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