How do macroprudential loan-to-value restrictions impact first time home buyers? A quasi-experimental approach

Christina Kinghan, Yvonne McCarthy and O’Toole, Conor
Authors registered in the RePEc Author Service: Conor M. O'Toole

Journal of Banking & Finance, 2022, vol. 138, issue C

Abstract: In this paper, we analyse the effect of the introduction of macroprudential limits on loan-to-value ratios on the borrowing behaviour of first-time-home-buyers in Ireland. Observing lending activity pre- and post- the unanticipated introduction of the regulations in 2015, we estimate the direct effect of the regulations on first-time-buyer leverage and house purchasing decisions. We exploit a unique provision in the macroprudential framework, that places different loan-to-value limits on properties above and below a fixed house price (€ 220,000), to determine the causal effect of the macroprudential measures on this group of borrowers. We find that LTVs fell by approximately 1.4 percentage points after the measures, with larger reductions recorded for high income borrowers. We also find that borrowers increased their downpayments in response to the regulations, with no change in the house price paid. However, findings differ across the income distribution, indicating the impact of wealth constraints on borrower behaviour. This research reinforces the importance of using granular data to understand the impact of loan-to-value regulations.

Keywords: Mortgages; Macroprudential regulation; Leverage; Loan-to-Value (search for similar items in EconPapers)
JEL-codes: C21 D04 D14 G21 G28 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:138:y:2022:i:c:s0378426619302523

DOI: 10.1016/j.jbankfin.2019.105678

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