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A new research project is the first to investigate whether discrimination based on ethnicity occurs in the Finnish mortgage market

In the United States, for example, citizens from ethnic minorities pay more for their mortgages than others, even if there are no differences in creditworthiness. Furthermore, minority members’ loan applications are rejected more often – even when the decision is made by an algorithm. According to the researcher in charge of the new project, corresponding discrimination would, in the Finnish setting, cause economic inequality with long-term impacts
Kuvituskuvassa talon pienoismalli, kodin avaimet ja sopimuspaperi
Home ownership is the most typical way for Finns to accumulate wealth. Without a mortgage, the accumulation of wealth can be slow or even impossible. This increases the prosperity gap. Photo: Pixabay

The joint project of researchers from Aalto University and the University of Helsinki is the first in Finland to address equality in the mortgage market. The research project will be carried out in 2022 with funding from the Kone Foundation. It will utilise register data collected by Statistics Finland to find out whether there is a connection between the ethnicity of mortgage holders and the interest paid on mortgage when other influential factors are standardised.

‘While ethnic discrimination has been shown to be a day-to-day reality in the Finnish labour market, for example, the phenomenon is yet to be studied in the financial market,’ says Niilo Luotonen, Postdoctoral Researcher in charge of the project.

‘Equality in mortgage lending is closely linked to economic equality in the Finnish society. I hope this project will shed light on facts for the public debate and activate banks to ensure equality.’

The researchers will also conduct a survey to identify non-statistical factors that could contribute to the infrequency or expensiveness of loans in certain population groups.

Expensive discrimination

Luotonen reminds that home ownership is the most typical way for Finns to accumulate wealth. Without a mortgage, the accumulation of wealth can be slow or even impossible. This increases the prosperity gap.

Recent studies from around the world indicate that discrimination is a persistent problem in the banking sector. Researchers from UC Berkeley, among others, have observed that in the United States, citizens from ethnic minorities pay more interest on their mortgages and have higher costs than white citizens with comparable creditworthiness. The cost of the interest rate gap alone for US minority mortgage holders is estimated at $450 million per year. In addition, mortgage applications submitted by members of a minority are rejected more often than those submitted by comparable white citizens, even if the decision is made by an algorithm.

In the United States, the HMDA Act requires banks to publicly report on mortgage applications processed and loans granted by them. In addition to the possible reason for rejection, the statistical data includes the applicant’s age, gender, ethnicity, ‘race’ and income level, as well as the amount of the loan and the interest margin. The reporting obligation has enabled scientific studies on the topic.

In Finland, there is no transparent system such as the HMDA. Instead, data on loan decisions and their justifications remain in the banks’ internal information systems. The realisation of equality is almost impossible to assess externally. It is partially for this reason that there is no research data on the equality of mortgage decisions in Finland.

According to the European Commission’s Being black in the EU report (2018), Finland is one of the most racist countries in Europe, and research indicates that there is strong discrimination based on presumed ethnicity in the Finnish labour market. Furthermore, the Non-Discrimination Ombudsman receives dozens of complaints on banks every year. According to the Ombudsman, discrimination is involved in a large part of the complaints.

‘The potential wealth impacts would not only extend to those who are discriminated against but also to their descendants through inheritance,’ says Luotonen.

‘Were discrimination directed at minorities whose socio-economic standing is already weak, it would increase the inequality in society far into the future.’

Project schedule and further information:

The project results will mainly be completed in autumn 2022. Niilo Luotonen, Postdoctoral Researcher in charge of the project, discusses the background of the study in further detail in the new issue of Ruskeat Tytöt Media which will be published in June 2022.

Contact information:

Researcher in charge: Niilo Luotonen, DSc (Econ), Postdoctoral Researcher
Tel. +358 50 539 4564
[email protected]

Project communications: Annina Huhtala
Tel. +358 40 827 6032
[email protected]

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