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

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