Mortgage Lending and Lack of Competition in the Dutch Market

Mortgage Lending and Lack of Competition in the Dutch Market

ABSTRACT: Sometimes the most important competition advocacy is the product of academics. On Dutch television on Friday, Maarten Pieter Schinkel of the University of Amsterdam was part of a television show that exposed the lack of competition for the Dutch mortgage market. Historically the Dutch mortgage market has been highly concentrated, yet competitive. During the financial crisis, all of the main mortgage providers but one received State aid. In an attempt to offset distortions of competition feared to be brought about by the aid, the European Commission imposed strict conditions on the aid recipients. The State-aid condition were negotiated in the Spring of 2009 and included so-called price leadership bans (PLBs). These prohibited aid recipient banks to price below non-recipient banks. Three of the four main players in the Dutch mortgage market were put under a PLB. Schinkel and his coauthors show that margins on Dutch mortgages over the costs of attracting funds shifted to historically high levels in anticipation of these bans taking effect. The PLBs effectively graduated the one Dutch mortgage provider that had not requested aid, from a competitive to a collusive price leader. Unlike in neighboring countries, where mortgage rates did follow the total costs of attracting funds down, in The Netherlands no competition between banks not operating under a PLB remained.