The Rise of Risk-Based Pricing of Mortgage Interest Rates in Italy

44 Pages Posted: 22 Mar 2011

Date Written: October 14, 2010

Abstract

The paper assesses the extent to which mortgage rates in Italy are priced according to credit risk as proxied by the probability of household mortgage delinquency estimated using the EU-Silc database. For reasons of data availability we restrict the analysis of mortgage pricing to Italian households. Consistent with the more extensive use of credit scoring techniques, our estimates indicate that Italian lenders have increasingly priced mortgage interest rates with reference to credit risk. For mortgages granted between 2000 and 2007, a 1 percentage point increase in the probability of default is associated with a 21 basis point rise in mortgage interest rates, less than the 38 basis point premium Edelberg (2006) estimated for the U.S. at the end of the '90s.

Keywords: mortgage interest rate, mortgage delinquencies, risk-based pricing

JEL Classification: D10, E43, G21

Suggested Citation

Magri, Silvia and Pico, Raffaella, The Rise of Risk-Based Pricing of Mortgage Interest Rates in Italy (October 14, 2010). Bank of Italy Temi di Discussione (Working Paper) No. 778, Available at SSRN: https://ssrn.com/abstract=1792535 or http://dx.doi.org/10.2139/ssrn.1792535

Silvia Magri (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

Raffaella Pico

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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