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Price-setting and price dispersion in the Dutch mortgage market

Author

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  • Michiel van Leuvensteijn

    (CPB Netherlands Bureau for Economic Policy Analysis)

  • Wolter Hassink

    (CPB Netherlands Bureau for Economic Policy Analysis)

Abstract

We 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.

Suggested Citation

  • Michiel van Leuvensteijn & Wolter Hassink, 2003. "Price-setting and price dispersion in the Dutch mortgage market," CPB Discussion Paper 21, CPB Netherlands Bureau for Economic Policy Analysis.
  • Handle: RePEc:cpb:discus:21
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    Cited by:

    1. Leo Haan & Elmer Sterken, 2011. "Bank-Specific Daily Interest Rate Adjustment in the Dutch Mortgage Market," Journal of Financial Services Research, Springer;Western Finance Association, vol. 39(3), pages 145-159, June.
    2. Leo de Haan & Elmer Sterken, 2006. "Price Leadership in the Dutch Mortgage Market," DNB Working Papers 102, Netherlands Central Bank, Research Department.
    3. Linda A. Toolsema & Jan P. A. M. Jacobs, 2007. "Why do prices rise faster than they fall? With an application to mortgage rates," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 701-712.
    4. Patricio Hevia & César Vásquez, 2017. "Caracterización de las Tasas de Interés de Créditos para la Vivienda," Economic Statistics Series 122, Central Bank of Chile.

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • 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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