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New Mortgage Lenders and the Housing Market
[Loan originations and defaults in the mortgage crisis: the role of the middle class]

Author

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  • Nikodem Szumilo

Abstract

This article examines the effect of a new lender’s entry into a local mortgage market on the supply of new loans, housing prices and repossessions in areas around its branches. I use the decision of the European Commission to force the UK’s largest retail bank to divest a part of its business as a shock to the entry of a new lender, and show that incumbent banks increase mortgage lending in areas where the new bank has its branches. Furthermore, house prices increase by around 5% in the real estate market impacted by the shock. Average transaction numbers and mortgage repossession rates also increase in places where the new bank enters. Overall, my results show that increased competition in the banking market can have adverse consequences for risk-taking and financial stability.

Suggested Citation

  • Nikodem Szumilo, 2021. "New Mortgage Lenders and the Housing Market [Loan originations and defaults in the mortgage crisis: the role of the middle class]," Review of Finance, European Finance Association, vol. 25(4), pages 1299-1336.
    • Handle: RePEc:oup:revfin:v:25:y:2021:i:4:p:1299-1336.
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    File URL: http://hdl.handle.net/10.1093/rof/rfaa031
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    Cited by:

    1. Akgündüz, Yusuf Emre & Dursun-de Neef, H. Özlem & Hacihasanoğlu, Yavuz Selim & Yılmaz, Fatih, 2023. "Cost of credit, mortgage demand and house prices," Journal of Banking & Finance, Elsevier, vol. 154(C).

    More about this item

    Keywords

    Bank competition; House prices; Mortgages; Credit supply; Bank risk;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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