The rise of risk-based pricing of mortgage interest rates in Italy

Silvia Magri (silvia.magri@bancaditalia.it) and Raffaella Pico (raffella.pico@bancaditalia.it)
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Raffaella Pico: Bank of Italy

No 778, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: The paper assesses the extent to which mortgage rates in Italy are priced according to credit risk as proxied by the probability of household mortgage delinquency estimated using the EU-Silc database. For reasons of data availability we restrict the analysis of mortgage pricing to Italian households. Consistent with the more extensive use of credit scoring techniques, our estimates indicate that Italian lenders have increasingly priced mortgage interest rates with reference to credit risk. For mortgages granted between 2000 and 2007, a 1 percentage point increase in the probability of default is associated with a 21 basis point rise in mortgage interest rates, less than the 38 basis point premium Edelberg (2006) estimated for the U.S. at the end of the '90s.

Keywords: mortgage interest rate; mortgage delinquencies; risk-based pricing (search for similar items in EconPapers)
JEL-codes: D10 E43 G21 (search for similar items in EconPapers)
Date: 2010-10
New Economics Papers: this item is included in nep-ban and nep-ure
References: View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Related works:
Journal Article: The rise of risk-based pricing of mortgage interest rates in Italy (2011)
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