Does lender type matter for the pricing of loans?

Staff working papers set out research in progress by our staff, with the aim of encouraging comments and debate.
Published on 16 November 2018

Staff Working Paper No. 767

By Aniruddha Rajan and Matthew Willison

Loan markets often contain lenders with contrasting business models and ownership structures. But does that matter for outcomes in these markets? We examine whether it does using a loan-level data set of mortgage transactions in the United Kingdom. We find the type of lender can matter for pricing behaviour. The levels of interest rates, as well as the sensitivity of rates to funding costs and borrower risk, vary between lender types. Some of these differences are consistent with theories of how agency problems might vary between types of lenders and past empirical studies. But other differences are not consistent. The results suggest further research is needed to understand how, to what extent, and why lender types affect pricing in loan markets.

PDFDoes lender type matter for the pricing of loans?

Was this page useful?
Add your details...