Working Paper: CEPR ID: DP14959
Authors: Viral V. Acharya; Katharina Bergant; Matteo Crosignani; Tim Eisert; Fergal McCann
Abstract: We analyze how regulatory constraints on household leverage—in the form of loan-to-income and loan-to-value limits—affect residential mortgage credit and house prices as well as other asset classes not directly targeted by the limits. Supervisory loan level data suggest that mortgage credit is reallocated from low-to high-income borrowers and from urban to rural counties. This reallocation weakens the feedback loop between credit and house prices and slows down house price growth in “hot” housing markets. Consistent with constrained lenders adjusting their portfolio choice, more-affected banks drive this reallocation and substitute their risk-taking into holdings of securities and corporate credit.
Keywords: macroprudential regulation; household leverage; residential mortgage credit; house prices
JEL Codes: G21; E21; E44; E58; R21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| introduction of loan-to-value (LTV) and loan-to-income (LTI) limits (G21) | reallocation of mortgage credit from low-income borrowers to high-income borrowers (G51) |
| reallocation of mortgage credit from low-income borrowers to high-income borrowers (G51) | slowing down of house price growth in hot housing markets (R31) |
| lending limits (F34) | changes in borrower demographics post-policy (G51) |
| more affected banks (G21) | increase in risk-taking in securities and corporate credit as a substitute for mortgage lending (G21) |
| distance from the limits (R12) | increase in mortgage issuance and loan size (G21) |