The supply side of product differentiation in the Italian mortgage market
International Journal of Housing Markets and Analysis
ISSN: 1753-8270
Article publication date: 8 July 2020
Issue publication date: 1 April 2021
Abstract
Purpose
This paper aims to propose a new indicator of product differentiation in the mortgage market and use it to examine how the double crisis, local market competition and bank-specific characteristics have influenced the supply of non-conventional mortgages in Italy.
Design/methodology/approach
This paper uses a special Bank of Italy’s survey on 400 Italian banks over the period 2006–2013, to compute a new indicator for product differentiation in the mortgage market. This paper considers mortgage with non-conventional characteristics: loan-to-value ratio greater than 80%; duration longer than 30 years or with a flexible maturity. This paper estimates probit and ordinary least squares (OLS) models using panel data at bank-time level.
Findings
The findings suggest that during the double crisis that hit the Italian economy between 2008 and 2013, the diversification process in the Italian household mortgage market slowed down. Controlling for banks’ and local markets’ this study finds that larger, less risky banks and those that have adopted scoring systems are more likely to offer non-conventional mortgages; moreover, banks operating in more competitive markets and in markets where other banks offer non-conventional loans tend to diversify their supply more. Most of these indications are confirmed by analyzing the quantities actually granted. These results suggest that the structure of the local markets does matter, and that there could be a non-price competition effect among banks in providing differentiated mortgage contracts.
Originality/value
The indicator, computed using data at bank level drawn from a special Bank of Italy’s survey, goes beyond the standard approach on product differentiation followed in the empirical literature, mainly base on the dichotomy between fixed and variable lending rates. Furthermore, to best of the authors’ knowledge, so far there is no empirical evidence on the supply-side factors that influenced the diversification of mortgages’ contractual terms during the crisis; particularly, there is no evidence on the role of local market competition and bank-specific features. This paper contributes to fill this gap in the literature.
Keywords
Acknowledgements
The authors wish to thank Guglielmo Barone, Laura Bartiloro, Raffaello Bronzini, Massimo Gallo, Valentina Michelangeli, Paolo Mistrulli, Steven Ongena, Paolo Sestito, participants at the workshops held at the Directorate General for Economics, Statistics and Research of the Bank of Italy, in January and September 2015, and in December 2016, and participants at the Rimini Conference in Economics and Finance held in June 2018, and at IFABS Conference held in Porto in July 2018. The views expressed herein are those of the authors and do not necessarily reflect those of the Bank of Italy.
Conflict of interest: The authors declare that they have no conflict of interest.
Citation
Del Prete, S., Demma, C. and Rossi, P. (2021), "The supply side of product differentiation in the Italian mortgage market", International Journal of Housing Markets and Analysis, Vol. 14 No. 2, pp. 371-393. https://doi.org/10.1108/IJHMA-02-2020-0015
Publisher
:Emerald Publishing Limited
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