Till Mortgage Do Us Part: Mortgage Switching Costs and Household’s Bank Switching

Brunetti MariannaCiciretti RoccoDjordjevic Ljubica
CEIS Research Paper
We investigate the role of mortgage switching costs in shaping the households’ decision to change their main bank. To this end, we use a unique panel dataset that enables us to infer household’s bank switching, in conjunction with a legal reform that exogenously slashed down the mortgage switching costs. The empirical evidence, which survives to a variety of robustness checks, supports the hypothesis that the explicit switching costs in the retail banking market are a weighty factor in shaping households’ bank switching, despite any potential “informational lock-in”. Dissecting the results, we show that the effects of the reform were not uniform across households. The more educated households, those with a longer or broader relationship with their previous bank and those residing in ex-ante less competitive banking markets were at the forefront of the wave of bank switching.

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Number: 364
Keywords: bank switching, mortgage switching costs, household finance
JEL codes: G21, D14
Volume: 14
Issue: 2
Date: Tuesday, February 2, 2016
Revision Date: Thursday, May 28, 2020