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What Drives the Gross Margins of Mortgage Loans? Evidence from Switzerland

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This paper empirically examines the determinants of margins for a unique dataset of 1,190,811 mortgage loans with fixed interest rates of eight Swiss banks over the period from 2001 to 2011. Our margin determinants include loan-specific factors as well as external and bank-specific characteristics, some of which have not been considered in previous studies. Our results reveal that loan-specific factors such as repricing, representing the credit period until the interest rate is newly set, and loan volume explain a substantial part of our dependent variable. Furthermore, external factors also significantly affect mortgage loan margins. Mortgages granted in cities have lower interest rates than those allocated in rural areas. The role of competition is also considered and the findings show that margins are higher in less concentrated and thus less competitive markets. Declining mortgage loan margins can be further explained by means of increasing operational efficiency and the mortgage growth strategy of a bank.

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  1. In order to check for multicollinearity, we computed the VIFs of all independent variables based on our OLS regression. VIFs are obtained by regressing an explanatory variable i on all other independent variables.


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We would like to thank the participants of the 2014 World Finance Conference, the participants of the 2013 Midwest Finance Association Conference in Chicago, the participants of the 2011 Southwestern Finance Association Annual Meeting in Houston TX and Rebel Cole, Horst Bienert and Christian Wunderlin for their valuable comments.

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Correspondence to Andreas Dietrich.

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Dietrich, A. What Drives the Gross Margins of Mortgage Loans? Evidence from Switzerland. J Financ Serv Res 50, 341–362 (2016).

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