The household effects of mortgage regulation

Knut Are Aastveit, Ragnar Juelsrud and Ella Getz Wold (ella.g.wold@bi.no)

No No 07/2021, Working Papers from Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School

Abstract: We evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, we show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.

Keywords: Household leverage; Financial regulation; Macroprudential policy; Mortgage markets (search for similar items in EconPapers)
Pages: 42 pages
Date: 2021-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-ure
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Citations: View citations in EconPapers (1)

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