Competition and interest rates in the Dutch mortgage market: an econometric analysis over 2004-2010

Triggered by evidence that the mortgage interest margins have risen since 2009, an econometric analysis is conducted to explain the interest rates in the Dutch mortgage market at the bank level ver 2004 – 2010. Controlling for the influence of costs, risks and also for some regulatory measures, we find statistically significant evidence that the degree of competition in the Dutch mortgage market (measured by C3 or HHI) affected the level of the mortgage interest rates. An increase in market concentration equal to the size of its standard deviation over the period of analysis raised the mortgage interest rate by approximately 0.10 to 0.20 percentage points. The impact of costs as well as risks appears to be about twice as large as the impact of market concentration.