Ethnic Discrimination in Mortgage Lending in Finland: Prevalence, Causes, and Consequences

I examine ethnicity-based differences in the interest rates of home mortgages in Finland. Recent studies from the U.S. show that risk-equivalent borrowers from racial minorities pay both higher interest rates (Bartlett et al., 2022) and higher fees (Ambrose et al., 2021) on their mortgages compared to white people. The higher interest rates alone cost these minority borrowers over $450 million per year (Bartlett et al.). Further evidence uncovers discrimination against racial minorities in the mortgage lending process. Giacoletti et al. (2022) estimate that loan officers’ subjective decision-making explains at least half of the “Black approval gap” in mortgages after controlling for observable characteristics, while Hanson et al. (2016) show mortgage loan originators to be more responsive to e-mail communication coming from whites than African Americans. This suggests that also the pricing differences may, at least partly, be driven by discrimination.

While there is no prior research on ethnic discrimination in the Finnish market for mortgages, it appears prevalent in other contexts in Finland. In fact, out of all EU countries, only in Luxembourg people experience more discrimination due to their ethnic or immigrant background than in Finland (European Union Agency for Fundamental Rights, 2018). People with distinctively foreign names are, for instance, less likely to be invited to job interviews than people with traditional Finnish names, even when credentials are equal (Ahmad, 2019). It therefore seems plausible that ethnic discrimination might also occur in the domain of mortgages.

My data comes from Statistics Finland and covers the entire population. For each individual residing in Finland, I observe the amount of mortgage credit and the annual interest paid each year between 2002 and 2019. The ethnicity of individuals and their parents is deduced from immigration data, showing the arrival date and country of origin for everyone relocating to Finland since 1983. Relevant control variables, such as age, gender, education level, income, and zip-code of residence are also available in the data.