From few to many: product differentiation in the Italian mortgage market

Nowadays Italian borrowers can choose among a variety of mortgage contracts. Using a special Bank of Italy survey on 400 Italian banks over the period 2006-2013, we analyse the supply of �non-conventional� mortgages (loan-to-value ratio greater than 80 per cent, duration longer than 30 years or with a flexible maturity). We build a synthetic indicator measuring the degree of differentiation of mortgages across banks to examine how local market competition and bank-specific characteristics have influenced this process. Our findings � potentially influenced also by customer preferences we cannot control for � suggest that larger, less risky banks and those that have adopted scoring systems are more likely to offer non-conventional mortgages. Moreover, banks operating in more competitive markets and in markets where other banks offer non-conventional loans tend to diversify their supply more. Most of these indications are confirmed by analysing the quantities actually granted. These results suggest that the structure of the local markets does matter and that there could be a non-price competition effect among banks in providing differentiated mortgage contracts.