The Competitive Development of the Swedish Mortgage Market

The Competitive Development of the

Swedish Mortgage Market

Kelvin Tran

Eddie Negussu

Business and Economics, bachelor's level 2021

Luleå University of Technology

ABSTRACT

SAMMANFATTNING

TABLE OF CONTENTS CHAPTER 1 INTRODUCTION ... 1 1.1 PURPOSE ... 2 1.2 DELIMITATIONS ... 2 1.3 METHOD ... 2 1.4 DISPOSITION ... 3

CHAPTER 2 THE SWEDISH HOUSING AND MORTGAGE MARKET ... 4

2.1 THE SWEDISH HOUSING MARKET ... 4

2.2 THE SWEDISH MORTGAGE MARKET ... 5

CHAPTER 3 THEORY ... 7 3.1 PERFECT COMPETITION ... 7 3.2 BERTRAND OLIGOPOLY ... 8 3.3 MARKET CONCENTRATION ... 11 3.3.1 Herfindahl-Hirschman Index ... 11 3.3.2 Concentration ratio (C4) ... 12

3.4 SWITCHING COSTS AND LOCK-IN EFFECTS ... 13

CHAPTER 4 METHOD AND DATA ... 14

4.1 METHOD ... 14 4.1.1 Market concentration ... 15 4.1.2 Price competition ... 15 4.1.3 Method discussion ... 16 4.2 DATA ... 17 4.2.1 Data discussion ... 18 CHAPTER 5 RESULTS ... 19 5.1 MARKET CONCENTRATION ... 19

5.1.1 Herfindahl-Hirschman Index (HHI) ... 21

5.1.2 Concentration ratio (C4) ... 22

5.2 BANKS’ GROSS MARGINS ... 22

CHAPTER 6 ANALYSIS AND DISCUSSION ... 25

CHAPTER 7 CONCLUSIONS ... 28

LIST OF TABLES

TABLE 1:HHI-INDEX CONCENTRATION INTERVALS ... 11

TABLE 2:HHI-INDEX COMPETITION INTERVALS ... 12

TABLE 3:DESCRIPTIVE STATISTICS OF THE LISTED INTEREST RATES IN 2013 ... 17

TABLE 4:DESCRIPTIVE STATISTICS OF THE LISTED INTEREST RATES IN 2020 ... 17

TABLE 5:THE CHANGE IN MARKET SHARES FOR THE EIGHT SWEDISH BANKS IN 2013 AND 2020 ... 21

TABLE 6:AVERAGE LENDING RATE IN PERCENT FOR YEARS 2013 AND 2020 ... 22

TABLE 7:LISTED INTEREST RATES AND GROSS MARGINS FOR THE BANKS IN 2013 ... 23

TABLE 8:LISTED INTEREST RATES AND GROSS MARGINS FOR THE BANKS IN 2020 ... 24

TABLE 9:GROSS MARGINS FOR THE BANKS BOTH YEARS ... 24

LIST OF FIGURES FIGURE 1.THE AVERAGE HOUSEHOLD DEBT RATIO AND DISPOSABLE INCOME,1980-2018 ... 5

FIGURE 2.MARKET EQUILIBRIUM AND A SINGLE BANK MEETING A HORIZONTAL DEMAND ... 8

FIGURE 3.INEFFICIENT BERTRAND OLIGOPOLY SHOWCASING THE DEADWEIGHT-LOSS ... 10

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CHAPTER 1 INTRODUCTION

What is the problem with weak competition in a market? According to Vives (2001), it has been known since Adam Smith that competition is more socially efficient from an allocative perspective. With an ineffective allocation, the price will be set at a higher level than in perfect competition. This occurs when firms have market power which means having the ability to influence the price on the market (Syverson, 2019). Therefore, a so-called dead-weight loss will occur, which means that the market is not producing services or goods at an optimal level. A more competitive environment will make the market more efficient and prevent dead-weight losses (Vives, 2001).

Even though it is desirable to make the market more competitive, there are frictions such as entry barriers and economies of scale that prevent it from happening (Vives, 2001). The Swedish Competition Authority released a report in 2013 showing that the competition on the Swedish mortgage market was weak, given the banks’ increased gross margins since 2009. Almost unchanged interest rates for customers presented examples of this weak competition, also known as non-existent price competition. The report suggests that the consumers market power towards the banks need to be strengthened. In 2012, the four largest banks in terms of market shares (SEB, Swedbank, Nordea and Handelsbanken) covered roughly 80 percent of the Swedish mortgage market (Swedish Competition Authority, 2013). The report presented multiple measures to the Swedish government to pursue a more competitive and less concentrated market. The conclusion by Swedish Competition Authority in 2013 was that the banks’ gross margins had increased, and that the competition was weak.

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analyse if the Swedish mortgage market was more competitive in 2020 compared to 2013. Therefore, this thesis aims to answer these questions:

● Has the market concentration on the Swedish mortgage market changed since 2013?

● Is the Swedish mortgage market more competitive in 2020 compared to 2013?

1.1 Purpose

The purpose of this thesis is to analyse if the level of competition in the Swedish mortgage market has changed since 2013 compared to 2020. This thesis also aims to analyse whether the price competition follows the same direction as the competition on the market. In other words, that the price decreases when the competition improves and vice versa.

1.2 Delimitations

This thesis is limited to the Swedish mortgage market. The focus is on the eight banks (Swedbank, SEB, Handelsbanken, Nordea, SBAB, Länsförsäkringar, Skandiabanken and Danske Bank) since they were included in the Swedish Competition Authority’s report. The time frame is for the years 2013 and 2020, respectively. The listed interest rates will be used since the data is available historically and used as the bank’s strategic variable. We will look at the interest rates with contract periods of three months, two years and five years for the same reason why the eight banks will be used.

1.3 Method

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1.4 Disposition

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CHAPTER 2

THE SWEDISH HOUSING AND MORTGAGE MARKET

This chapter serves as a section for the reader to get a more in-depth understanding and clarification of the Swedish mortgage market and define concepts regarding the Swedish housing market.

2.1 The Swedish housing market

Sweden has different forms of housing consisting of rental apartments, privately-owned apartments and ownership houses (houses) (Boverket, 2019). The focus in this thesis will be on the latter two since those are the ones that households usually have mortgages on (Boverket, 2019).

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Figure 1. The average household debt ratio and disposable income, 1980-2018

Source: SCB (2019).

2.2 The Swedish mortgage market

Mortgage as a financial product in Sweden serves as lending for houses or apartments from banks to households. Usually, the banks use houses or privately-owned apartments as security for the mortgage, also known as a home equity loan. However, households are allowed to take out a mortgage of 75-85 percent of the purchase price. The rest of the sum must be a down payment by the households or covered by unsecured loans. The increased debt ratio in the 90s resulted in regulatory measures by the Swedish financial supervisory authority in 2010. Essentially, the mortgage security could only be 85 percent of the purchase price (Swedish Competition Authority, 2013).

According to the Swedish Competition Authority (2013), roughly two-thirds of the Swedish population lives in privately-owned apartments or houses when observing the mortgage market. Therefore, the need for mortgages is high because 85 percent of all household lending coming from banks goes to financing houses and privately-owned apartments for households in Sweden (Swedish Competition Authority, 2013).

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 200% 0 SEK 50 000 SEK 100 000 SEK 150 000 SEK 200 000 SEK 250 000 SEK 19801982198419861988199019921994199619982000200220042006200820102012201420162018 Pr opor tion of the di spos abl e inc om e Di sp os ab le in co m e Years

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CHAPTER 3 THEORY

3.1 Perfect Competition

Perfect competition is a market structure that is often claimed to be optimal, but what is the definition of a perfectly competitive market? In a perfectly competitive market, there are many smaller firms and many consumers active on the market. With many small firms on the market, the power for one firm to control the price or total quantity on the market is eliminated. The firms, therefore, have no market power and are price takers. The product or service that is sold on the market is assumed to be homogeneous in the case of perfect competition. Consumers have perfect information and low or no transactional costs (Lundmark, 2017). There are no barriers to entering or exiting the market, which implies that firms will enter the market when profits occur and leave when it is unprofitable (Baye & Prince, 2013). Firms are making zero profits in the long run, producing where the market price is equal to their marginal cost. This market structure is considered optimal since it eliminates welfare losses. The price that customers are willing to pay equals the gain of the society or the social cost of the product (Baye & Prince, 2013).

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firms are price takers and cannot influence the price, and consequently, the average revenue (AR), marginal revenue (MR), and price are all equal. The price on the market is therefore dependent on supply and demand (Lundmark, 2017).

Figure 2. Market equilibrium and a single bank meeting a horizontal demand

3.2 Bertrand Oligopoly

An oligopoly has several observable market characteristics. First and foremost, the number of firms on the market is limited. Usually, only a few large firms operate on the market (Baye & Prince, 2013). The product or service that the firms provide is homogeneous or differentiated. In an oligopoly, all choices that a firm makes affect and depend on the choices made by the other firms on the market. It can be said that all firms are strategically dependent on each other (OECD, 2003). This means that when a firm wants to increase its profit on an oligopoly market, it can not only focus on how increased production can affect its profit. The behaviour and production from the competitors will affect the individual firm. Therefore, a single firm must take into account the competitors when making strategic decisions for profit maximisation (Lundmark, 2017).

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a single mortgage since customers have complete information, no transactional costs, and the service provided by the banks are perfect substitutes. This will develop to a high rate of price competition. Continuous price decline would occur until the price reaches the same level as the marginal cost and we have reached the long-term equilibrium on the mortgage market. Therefore, the price competition will lead to decreasing profits and finally reach the equilibrium where profits are zero for all banks (Baye & Prince 2013).

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Figure 3. Inefficient Bertrand oligopoly showcasing the deadweight-loss

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3.3 Market Concentration

3.3.1 Herfindahl-Hirschman Index

Herfindahl-Hirschman Index (HHI) is an index that is commonly used as a measurement of market concentration. HHI is the square of the market shares ('_*) of all active firms are added together and then multiplied by 10 000. In equation (1), "_*is equal to the i:th bank’s total mortgage lending and "( is equivalent to the total mortgage lending to

households on the market. Equation (2) shows how HHI is calculated using the result from equation (2). '_* = 0! 0". (1) **+ = 10000 . '_*1 & *23 (2)

In this setting, HHI ranges between 0 and 10 000. An HHI that equals zero means a market with an infinite number of small firms. If the HHI is equal to 10 000, the market is dominated by one firm with a market share of 100 percent. This implies, with a higher HHI, we have a higher market concentration and vice versa (Baye & Prince, 2013). The HHI-index can be divided into three intervals: 1-1499, 1500-2499 and 2500-10000, where the concentration is considered low, moderate and high, see Table 1 (Corporate Finance Institute, 2021). HHI is used and accepted as a tool for indicating the level of competition in a market (Brezina et al., 2016).

Table 1: HHI-index Concentration intervals

HHI-index Concentration

1-1499 Low

1500-2499 Moderate

2500-10 000 High

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In table 2, the market concentration is connected to implied market forms. When the market concentration increases, the competition will suffer as a result. HHI is, therefore, not only a tool for measuring market concentration but also works as an indicator when measuring the competition on the market (Djolov, 2013).

Table 2: HHI-index Competition intervals

HHI Market form

0-1000 Perfect competition 1001-1800 Monopolistic competition 1801- 10 000 Oligopoly/Monopoly Source: Djolov (2013). 3.3.2 Concentration ratio (C4)

The concentration ratio (C4) is a tool that is used to measure market concentration. While the HHI-index usually includes all firms in its calculation of the market concentration, the C4 only includes the four firms with the largest market shares. The C4 ratio is the sum of the market shares of the four largest firms (Baye & Prince, 2013). When the C4 is high, the market has a high market concentration and vice versa. A higher C4 indicates a lower level of competition. If C4 is higher than 40 percent, it usually indicates that the market is an oligopoly. A C4 below 40 percent, therefore, indicates a market with a concentration lower than in an oligopoly and monopoly. (Oxford Reference, 2021). The calculation follows as:

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3.4 Switching costs and lock-in effects

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CHAPTER 4 METHOD AND DATA

To be able to answer the research questions in the best possible manner, we apply a quantitative approach for this thesis. The method for this thesis is mainly through data collection. Data collected will be for interest rates, market shares and the Swedish Central Bank’s lending rate. This chapter will end with a discussion and analysis regarding possible problems and challenges with the data and methods chosen.

4.1 Method

This thesis aims to analyse the market concentration on the Swedish mortgage market and the price competition. The first part deals with the market concentration on the Swedish mortgage market. The banks included are Swedbank, SEB, Handelsbanken, Nordea, SBAB, Länsförsäkringar, Skandiabanken and Danske Bank. These banks were chosen since they were included in the Swedish Competition Authority’s report. The market concentration is calculated by using equation (1) and (2). The data used is each bank’s mortgage lending and the total mortgage lending on the market. The result is then compared between the years 2013 and 2020 to be able to identify any possible changes. The challenge with our delimitation is the fact that the HHI-index perhaps be skewed due to the fact that smaller banks in 2013 that had low market shares have not been included as separate banks in 2020. The concentration ratio is calculated by using equation (3), summing up the market shares for the four biggest banks. The result is then compared between the years 2013 and 2020 to be able to identify any possible changes among the four banks. The exact reason for the usage of C4 and HHI was to implement more tools that could indicate on the same outcome, thus increase the validity of this thesis.

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4.1.1 Market concentration

The first step is to collect the total mortgage lending for home equity loans for the eight banks from SCB’s archives. The data is filtered on SEK, home equity loan, and for the years 2013 and 2020. The next step is to import the data into Excel and then calculate the yearly average mortgage lending for each bank from each month. This procedure is done for both years. The same procedure is performed for the total mortgage lending on the market for both years. The yearly average total mortgage lending from each month is calculated. To get the market shares for both years, each bank’s yearly average is then divided by the annual average total mortgage lending for the market using equation (1). To get the HHI-index for both years, the market shares are then inserted into equation (2). To determine the concentration ratio for both years, the four biggest banks’ market shares for each year are summed up, as in equation (3).

4.1.2 Price competition

To determine the gross margins, the listed interested rates for both years for the banks’ have to be collected. Swedbank, Handelsbanken, Nordea, SBAB and Danske Bank have published their historical interest rates and could therefore be imported into Excel directly. To get the interest rate for SEB, Länsförsäkringar and Skandiabanken, phone contact has been established in order to collect the interest rates for both years. These rates are successively imported into the Excel file. Since the listed interest rates change throughout a year, the yearly average is calculated for each bank. As mentioned in 1.2

Delimitations, there are different contract periods, and therefore, each bank has a total of

six yearly average interest rates divided between 2013 and 2020.

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4.1.3 Method discussion

As mentioned in the first chapter, a problem with the usage of the HHI-index is that the same set of banks are included, both when calculating HHI on the market in 2013 and 2020. This means that smaller banks that have gained larger market shares are not included. Therefore, the HHI-index that is calculated for the year 2020 may be misleading since the newly established banks have formed a more significant variable in the equation, and therefore acting as one big firm. Thus, affecting the outcome of the concentration.

Collecting and analysing data from 2013 and 2020 has been satisfactory for fulfilling the purpose of the thesis. Although, the collection of data could have been made for the years in between as well (2014-2019). This could contribute to a deeper understanding of the development of the market over time and give a deeper insight into the market mechanisms that affect the interest rates as well as the market concentration.

When calculating the gross margin for the banks, we have used the listed interest rates subtracted with the Swedish central bank’s lending rate. A problem with this calculation of the gross margin is that in the report from the Swedish Competitive Authority, a different method was used for the calculation. In the report from the Swedish Competitive Authority, the gross margin was calculated using the actual interest rates and the lending costs for the banks. Because we used a different method for the calculation of the gross margin, comparing our calculated gross margin with the gross margin from the report would not be ideal. Using the same method would be preferred, but since the lending costs for the banks and the actual interest rates were not available, this was not possible. To solve this problem, we have calculated the gross margin with our method for both 2013 and 2020 to create uniformity in the calculation method. This allowed us to compare the gross margins from both years that were calculated with the same variables which allowed us to present a more accurate result.

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4.2 Data

Table 3 and 4 present the average listed interest rates for the three contract periods, but also the minimum and the maximum interest rates. The contract periods are presented vertically and the statistics horizontally.

Table 3: Descriptive statistics of the listed interest rates in 2013

2013 Mean Min Max

3-month 2.92 2.82 2.96

2-year 2.99 2.90 3.04

5-year 3.52 3.45 3.59

Table 4: Descriptive statistics of the listed interest rates in 2020

2020 Mean Min Max

3-month 2.27 1.72 2.40

2-year 1.85 1.58 2.17

5-year 1.82 1.67 2.18

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4.2.1 Data discussion

As mentioned previously, the data collected for the banks’ mortgage lending to Swedish households came from SCB. It could be seen as a reliable source since they are responsible for the official statistics in Sweden. The data was downloaded as an Excel file and measurement error could have occurred due to human error, and that all the needed data was not included.

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CHAPTER 5 RESULTS

This chapter will present the results of studies regarding the market concentration and the banks’ gross margins. The results will be presented separately in different sections, starting off with the market concentration, followed up by the banks’ gross margins.

5.1 Market concentration

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Figure 4. Market shares for the eight Swedish banks in 2013 and 2020

Source: SCB (2021).

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Table 5: The change in market shares for the eight Swedish banks in 2013 and 2020

Banks 2013 2020 Change in %-points %-change Swedbank 26.06% 25.52% -0.54% -2.07% Nordea 14.73% 13.63% -1.10% -7.47% SEB 16.20% 13.80% -2.40% -14.81% Handelsbanken 22.56% 21.87% -0.69% -3.06% SBAB Bank 7.26% 8.50% 1.24% 17.08% Skandiabanken 1.25% 2.05% 0.80% 64.00% Danske Bank 3.69% 0.77% -2.92% -79.13% Länsförsäkringar 4.87% 7.04% 2.17% 44.56% Other banks 3.38% 6.82% 3.44% 101.78% Source: SCB (2021) and own calculations.

5.1.1 Herfindahl-Hirschman Index (HHI)

The conclusion that the Swedish Competition Authority made in 2013 was that the competition was low with a relatively high HHI-index of 1800. Our calculation for the same year is depicted in equation 4 below and shows an HHI that is equal to 1770.36, which is relatively close to the result from the Swedish Competition Authority. The same calculation is then made for the year 2020, which is depicted in equation 5. The calculation for the year 2020 shows an HHI equal to 1678.88. This shows that according to our calculations, the HHI for the Swedish mortgage market has decreased by 91.48 units from 2013 to 2020, which shows a decreasing market concentration.

**+1635 = 10 000 . '*1 = 1770.36 &

*23

22 **+₁₆₁₆ = 10 000 . '_*1 _{= 1678.88} & *23 (5) 5.1.2 Concentration ratio (C4)

The concentration ratio (C4) is used for calculating market concentration for both 2013 and 2020. Equation 6 and 7 show the results. The results show a C4 that is decreasing. In 2013 C4 had a value of 79.55, and in 2020 that value decreased to 74.82. This shows a decrease of 4.73 percentage points, which shows a decrease of market concentration on the Swedish mortgage market.

04₁₆₃₅ = '₃+ '₁ + '₅+ '₄ = 79.55 (6) 04₁₆₁₆ = '₃+ '₁ + '₅+ '₄ = 74.82 (7)

5.2 Banks’ gross margins

In order to calculate the banks’ gross margins, the listed interest rates and lending rates are collected. The lending rate is displayed as percent in Table 6. It is evident that the lending rate is significantly lower in 2013 than in 2020, with a decrease by roughly 85 percent.

Table 6: Average lending rate in percent for years 2013 and 2020

Year Lending rate

2013 1.74 2020 0.26

Source: Riksbanken (2021).

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Table 7: Listed interest rates and gross margins for the banks in 2013

Banks 2013 3-month Gross margins (3-month) 2-year Gross margins (2-year) 5-year Gross margins (5-year) Swedbank 2.93 1.19 3.04 1.30 3.58 1.84 SEB 2.94 1.20 3.02 1.28 3.52 1.78 Handelsbanken 2.91 1.17 2.97 1.23 3.47 1.73 Nordea 2.82 1.08 2.90 1.16 3.45 1.71 Skandiabanken 2.90 1.16 2.98 1.24 3.47 1.73 Länsförsäkringar 2.94 1.20 3.04 1.29 3.51 1.76 SBAB 2.92 1.18 2.98 1.24 3.59 1.85 Danske Bank 2.96 1.22 3.01 1.26 3.56 1.82 Source: Riksbanken (2021) and own calculations.

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Table 8: Listed interest rates and gross margins for the banks in 2020

Banks 2020 3-month Gross margins (3-month) 2-year Gross margins (2-year) 5-year Gross margins (5-year) Swedbank 2.34 2.08 1.99 1.73 1.83 1.56 SEB 2.40 2.14 1.85 1.59 1.85 1.58 Handelsbanken 2.39 2.12 1.84 1.58 1.71 1.45 Nordea 2.39 2.13 1.87 1.61 1.77 1.50 Skandiabanken 2.13 1.86 2.17 1.90 2.18 1.91 Länsförsäkringar 2.37 2.10 1.82 1.55 1.77 1.51 SBAB 1.72 1.46 1.66 1.39 1.67 1.41 Danske Bank 2.39 2.12 1.58 1.32 1.76 1.50 Source: Riksbanken (2021) and own calculations.

Table 9 shows the average gross margins for all eight banks for both years. The table is divided into the three different contract periods 3-months, 2-years and 5-years. In 2013 the longer the contract period, the higher the gross margins it seems. The opposite trend for 2020. The gross margins for 3-months and 2-years have increased while the 5-year period has decreased.

Table 9: Gross margins for the banks both years

Year 3 months 2 years 5 years

2013 1.17% 1.25% 1.78%

2020 2.00% 1.58% 1.55%

Change 0.83% 0.33% -0.22%

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CHAPTER 6

ANALYSIS AND DISCUSSION

The results indicate that the four prominent banks have lost market shares between 2013 and 2020 but also that the clustered group of the other banks outside of this study has increased. The concentration on the Swedish mortgage market has also decreased during the same period. This suggests that the mortgage market is more competitive in 2020 compared to 2013. One explanation could be that smaller firms, outside the eight banks, have gained more market shares. The other explanation could be that more banks have entered the mortgage market and therefore diluted the concentration on the market.

Results from the C4 shows that the concentration is above 40 percent both in 2013 and 2020. It can therefore be inferred that the Swedish mortgage market still is characterised as an oligopoly. However, it is a less strong form of an oligopoly, moving towards a more competitive market. This is because a concentration below 40 percent indicates that there are no dominating firms, and that the competition is healthy.

Our results indicate that the listed interest rates have decreased for all contract periods. This is evidence of a market where competition is increasing. However, while the listed interest rates have decreased, the gross margins have increased for the mortgages with contract periods 3 months and 2 years. The 5-year contract period does deviate from the other contract periods with a decreasing gross margin for 2020. One possible explanation could be that the banks want to lock in their customers for an extended period due to an unstable market caused by the COVID-19 pandemic. The overall listed interest rate for the 5-year period is generally lower than the 3-month and 2-year contract in 2020. This could be an indication showing that the banks want the customers to gravitate towards the longer contract period and therefore offer lower interest rates for the more extended contract period.

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this. This could be explained by the fact that the Bertrand model assumes that the marginal cost is constant. However, in our calculations, the marginal cost, which is defined as the Swedish central bank’s lending rate, has decreased for all banks. This results in a higher gross margin, even though the listed interest rates decrease.

Increasing gross margin in a Bertrand oligopoly such as the Swedish mortgage market could also be explained by the existence of tacit collusion. There is a possibility of a silent understanding among the banks not to lower the price to the same level as the marginal cost. By doing this, the banks will all profit since they can work against the consumers to raise their price and profits. However, this can only be possible if all the banks keep their price high without undercutting each other since this would disrupt the price agreement (Orr & MacAvoy, 1965). All the banks have an incentive to keep the price high since if one of the banks undercut the agreement, this could develop into price competition that would result in the price equalling the marginal cost, which would mean that all the banks would lose their profit. Although, this possible collusion could be threatened if new banks would enter the market. A new bank trying to break into the market could undercut the existing competition (Swedish Competition Authority, 2001). By doing this, the new bank would effectively disrupt the current market outcome and instead create price competition that would, in the long run, result in the classical Bertrand outcome where price equals marginal cost. This could only occur if the new bank has the possibility to get past the entry barriers. Our result indicates that this could be the case. Smaller and new banks have entered the market and increased the price competition, which has led to lower interest rates and less market concentration.

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explain the overall lower listed interest rates on the mortgage market and the increased gross margins for the banks.

The mortgage market had entry barriers in 2013, which could have contributed to the low level of competition and high concentration. Entry barriers for the mortgage market can be brand loyalty, legal barriers, and absolute cost advantages (Alhadeff, 1974). These barriers could have contributed to keeping the number of banks on the market limited in 2013. However, observing the mortgage market in 2020, it has been stated that there has been some entry into the market. This could mean that the entering banks have been able to advance through the barriers or that the barriers are not as substantial in 2020 as they were in 2013.

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CHAPTER 7 CONCLUSIONS

The purpose of this thesis was to analyse whether the Swedish mortgage market had a higher or lower concentration in 2020 than in 2013 and to analyse whether the price competition was following in the same direction as the competition on the market. Our results showed that the price competition was higher in 2020 than 2013 and that the concentration on the Swedish mortgage market was lower in 2020 than in 2013. More banks had entered the market, and smaller banks had increased their market shares. The competition was also improved with a lower listed interest rate, suggesting that the mortgage market is moving in the right direction, i.e., a more competitive environment. A significantly lower lending rate in 2020 can partly explain the increased gross margins on the mortgage market.

The thesis shows that the market concentration has decreased during the same period and that the mortgage market has grown, and more banks’ have entered the market. The listed interest rates were also generally lower in 2020 than in 2013, indicating that the price competition has improved. If the increased competition was due to new entries or the development of smaller banks, that is something that could be empirically analysed for future studies. Either way, the listed interest rates were lower in 2020 than in 2013, suggesting that customers are presented with more beneficial interest rates in 2020.

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would increase since the majority of the gross margins for the contract periods had increased in 2020. If the results were reliable, it would also indicate lower switching costs and, therefore less of a lock-in effect.

Even though our results indicate that the concentration on the mortgage market was lower and that competition was improved, this thesis should not serve as proof of the actual mortgage market in Sweden. The assumptions in this thesis were that we had a Bertrand oligopoly, when perhaps, in reality, might be far from the truth. There might be another type of oligopoly or market structure that would better describe the Swedish mortgage market. To further improve this study, a suggestion would be to conduct a more in-depth analysis of the characteristics of the banks and the market in Sweden to apply a more accurate market structure. But also, to further improve this thesis, would be to analyse the interest changes each month to see the responsiveness from the other banks, whether there are price initiators or followers, to get a more in-depth understanding of the mechanisms behind the price.

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