Determinants of Price Discrimination and Switching Mortgage Provider in Times of Regulation and Digitalization

41 Pages Posted: 4 Oct 2021 Last revised: 11 Oct 2021

See all articles by Steven Ongena

Steven Ongena

University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; NTNU Business School; Centre for Economic Policy Research (CEPR)

Florentina Paraschiv

Zeppelin University, Chair of Finance; Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School; University of St. Gallen, Institute for Operations Research and Computational Finance

Endre J Reite

Norwegian University of Science and Technology (NTNU) - Department of International Business; BN Bank ASA

Date Written: September 27, 2021

Abstract

In this paper, we analyse the price discrimination and household switching in the residential mortgage market. Accessing a unique proprietary micro-data set from Norway, we examine the difference between the loan rate paid by current clients when receiving a competing offer from another bank and the best rate simultaneously being offered to new customers by the current bank. The results show that current clients pay around 20 basis points more than new customers are offered; however, this rate differential is kept in check by client switching. New regulations and digitalization that enhance transparency could reduce the rate differential, but the introduction of new banking products as well as the change in timing of the rate differentiation - from immediate upfront to gradually over time - may be used to preserve it.

Keywords: Mortgage lending, Financial regulation, Consumer protection, digitalization, Price discrimination

JEL Classification: D12, D14, G21, C41

Suggested Citation

Ongena, Steven R. G. and Paraschiv, Florentina and Reite, Endre J, Determinants of Price Discrimination and Switching Mortgage Provider in Times of Regulation and Digitalization (September 27, 2021). Swiss Finance Institute Research Paper No. 21-67, Available at SSRN: https://ssrn.com/abstract=3935746 or http://dx.doi.org/10.2139/ssrn.3935746

Steven R. G. Ongena (Contact Author)

University of Zurich - Department of Banking and Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

NTNU Business School ( email )

Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Florentina Paraschiv

Zeppelin University, Chair of Finance ( email )

Am Seemooser Horn 20
Friedrichshafen, 88045
Germany

Norwegian University of Science and Technology, Faculty of Economics and Management, NTNU Business School ( email )

Klæbuveien 72
Trondheim, NO-7030
Norway

University of St. Gallen, Institute for Operations Research and Computational Finance ( email )

Bodanstrasse 6
St. Gallen, 9000
Switzerland

Endre J Reite

Norwegian University of Science and Technology (NTNU) - Department of International Business

Norway

BN Bank ASA ( email )

Kongens gate 2
Trondheim, 7013
Norway

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