Measuring Transparency in the Dutch Mortgage Market

Abstract

SummaryThis paper is an empirical study of pricing in the Dutch mortgage market. For a narrowly defined set of endowment mortgages (with a fixed lending rate of 10 years), we find that the price dispersion within lenders is larger than the dispersion across lenders. Prices remain dispersed across lenders, even after controlling for characteristics of the borrower, the municipality and the government bond rate. Apparently, the mortgage market is not fully transparent, which impedes competition in the mortgage market. We also find that the price dispersion for mortgages sold by banks is smaller than that for mortgages sold by other lenders. A likely explanation is that lenders using middlemen have higher agency costs.

Why do prices rise faster than they fall? With an application to mortgage rates

“…from potential entry and substitutes, is limited. Third, Hassink and van Leuvensteijn (2003) present evidence of mortgage rate dispersion, even when correcting for borrower characteristics, which also indicates market power.…”

“…The market is highly concentrated. In the period 1993-2001, commercial banks had a market share of 45-50% for new mortgages, where the remaining share was accounted for by insurance companies and other lenders (Hassink and van Leuvensteijn, 2003). In terms of stocks (outstanding mortgages), the banks control a far larger share of the market.…”

Mortgage Interest Rate Dispersion in the Euro Area

“…At the national level, Martin et al (2005a) using a sample of Spanish banks and controlling for product differentiation point to the existence of price dispersion in retail banking markets due to information differentiation and borrower search costs. In a related study of the Dutch mortgage market, Hassink and Van Leuvensteijn (2006) provide evidence of price dispersion on mortgages even within lending banks' loan portfolio. They relate this dispersion to the lack of market transparency owing to the presence of imperfect information and heterogeneous search costs.…”

Farm capital structure choice: theory and an empirical test

“…Other credit risk models also consider nonfinancial and qualitative elements, and have tested whether borrower characteristics, e.g., marital status, can predict the PD (Dodson and Koenig, 2008). In an empirical study of the Dutch mortgage market, Hassink and van Leuvensteijn (2007) found that borrower's age, the value of the collateral, and the value of the mortgage loan relative to that of the home can explain differences in PD.…”