Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK

Peydró, José-Luis, Jagdish Tripathy, Francesc Rodríguez Tous and Arzu Uluc
Authors registered in the RePEc Author Service: Jose-Luis Peydro

No 15275, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Macroprudential regulators worldwide have introduced regulations to limit household leverage in light of existing evidence which suggests that high leverage is associated with household distress during crisis. We analyse the distributional effects of such a macroprudential policy on mortgage and house price cycles. For identification, we exploit the universe of UK mortgages and a 15%-limit imposed in 2014 on lenders—not households—for high loan-to-income ratio (LTI) mortgages. Despite some regulatory arbitrage (e.g. increases in LTV and average loan size), more-constrained lenders issue fewer high-LTI mortgages. Partial substitution by less-constrained lenders leads to overall credit contraction to low-income borrowers in local-areas more exposed to constrained-lenders, lowering house price growth. Following the Brexit referendum (which led to house-price correction), the 2014-policy strongly implies—via lower pre-correction debt—better house prices and mortgage defaults during an episode of house price correction.

Keywords: Macroprudential policy; Mortgages; Credit cycles; Inequality; House prices (search for similar items in EconPapers)
JEL-codes: E5 G01 G21 G28 G51 (search for similar items in EconPapers)
Date: 2020-09
New Economics Papers: this item is included in nep-ban, nep-cwa, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Working Paper: Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the UK (2020)
Working Paper: Macroprudential policy, mortgage cycles and distributional effects: Evidence from the UK (2020)
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