High Mortgage Rates in the Low Countries: What Happened in the Spring of 2009?

25 Pages Posted: 4 Dec 2014 Last revised: 28 Mar 2018

See all articles by Mark Dijkstra

Mark Dijkstra

Utrecht University - Utrecht School of Economics

Fleur Randag

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE)

Maarten Pieter Schinkel

University of Amsterdam - Department of Economics; Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: December 4, 2014

Abstract

Since the Spring of 2009, Dutch mortgage rates have been structurally high, both in comparison to the rest of Europe and to funding costs. This paper reviews the debate on possible causes, which are of two kinds: (i) the higher mortgage rates reflect higher funding costs; and (ii) softer competition has allowed higher price-cost margins for mortgage providers. Detailed margin calculations based on an established cost formula reveal that, while funding costs have risen substantially since the financial crisis, they do not fully explain the high mortgage rates, relative to very low base rates. Instead, there are competition concerns in Dutch mortgage banking since the financial crisis, in particular a high market concentration with established banks, exit of several foreign challengers, a remarkable restriction of competition through price-leadership bans imposed by the European Commission on three of the four largest mortgage providers, and funding capacity constraints in part resulting from tightened banking regulation. It is concluded that while several of the developments discussed together created market conditions rife for margin increases through coordination, the European Commission’s price leadership bans appear to have acted as a nucleus for the crystallization of high mortgage rates in the Spring of 2009.

Keywords: mortgages, funding costs, competition, State aid

JEL Classification: G21, L13, L41

Suggested Citation

Dijkstra, Mark and Randag, Fleur and Schinkel, Maarten Pieter, High Mortgage Rates in the Low Countries: What Happened in the Spring of 2009? (December 4, 2014). Journal of Competition Law & Economics, 10 (4), 2014, 843-859; Amsterdam Center for Law & Economics Working Paper No. 2014-05; Amsterdam Law School Research Paper No. 2014-64. Available at SSRN: https://ssrn.com/abstract=2533892 or http://dx.doi.org/10.2139/ssrn.2533892

Mark Dijkstra

Utrecht University - Utrecht School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, +31 30 253 7373 3584 EC
Netherlands
+31302531617 (Phone)

HOME PAGE: http://https://www.uu.nl/medewerkers/MADijkstra

Fleur Randag

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Maarten Pieter Schinkel (Contact Author)

University of Amsterdam - Department of Economics ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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