Discrimination of Immigrants in Mortgage Pricing and Approval: Evidence from Italy

In this paper, we explore empirically whether immigrants, other things being equal, pay more for mortgages than natives and whether the probability that banks approve their loan applications is systematically lower. To this aim, we use two extensive and unique dataset of mortgage contracts and banks’ requests for initial information about potential mortgagors drawn from the Italian Credit Register for the period 2011-2016, and survey data from the Survey on Household Income and Wealth conducted by the Bank of Italy for the period 2006-2016. We find that immigrants pay 19-24 basis points more than native Italians on single-name mortgages and 28-40 basis points more on jointly-owned ones. This interest rate gap narrows significantly, but does not disappear, when immigrant borrowers’ credit history lengthens or if they borrow from a cooperative bank. Finally we find that immigrants have a 2.7% smaller chance of getting a mortgage compared to natives, which decreases for mortgage applications submitted to cooperative banks. Overall, our findings suggest that the disparity of treatment of immigrants in the Italian mortgage market is mostly due to a greater difficulty of banks in assessing the credit-worthiness of culturally distant borrowers. However, we also detect that cultural distance may fuel persistent disparity between migrants and natives.