Does Lender Type Matter for the Pricing of Loans?

56 Pages Posted: 16 Nov 2018

Date Written: November 16, 2018

Abstract

Loan markets often contain lenders with contrasting business models and ownership structures. But does that matter for outcomes in these markets? We examine whether it does using a loan-level data set of mortgage transactions in the United Kingdom. We find the type of lender can matter for pricing behaviour. The levels of interest rates, as well as the sensitivity of rates to funding costs and borrower risk, vary between lender types. Some of these differences are consistent with theories of how agency problems might vary between types of lenders and past empirical studies. But other differences are not consistent. The results suggest further research is needed to understand how, to what extent, and why lender types affect pricing in loan markets.

Keywords: Banking, lending, business models, mutuals

JEL Classification: G21, G30, L21

Suggested Citation

Rajan, Aniruddha and Willison, Matthew, Does Lender Type Matter for the Pricing of Loans? (November 16, 2018). Bank of England Working Paper No. 767. Available at SSRN: https://ssrn.com/abstract=3286000 or http://dx.doi.org/10.2139/ssrn.3286000

Aniruddha Rajan (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Matthew Willison

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

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