LTV policy as a macroprudential tool and its effects on residential mortgage loans

Peter Morgan, Paulo Regis and Nimesh Salike ()

Journal of Financial Intermediation, 2019, vol. 37, issue C, 89-103

Abstract: Since the early 2000s, macroprudential policy has increasingly become part of the regulatory and supervisory framework. Likewise, the housing market has been at the center of the debate on systemic financial risk prevention. Among macroprudential tools, the purpose of the loan-to-value (LTV) ratio is to constrain mortgage loan creation. This paper is unique in that it analyzes the effectiveness of LTV on mortgage lending moderation using a large sample of more than 4000 banks from 46 countries. The analysis suggests mortgage loans have been successfully curbed in countries with a LTV policy. Size and non-performing loans are the two key characteristics to the effectiveness of LTV. When nonlinearities are considered, the average effect of LTV can be very large; however, it becomes much less effective with large banks and banks with bad loans. Our results suggest the inclusion of other macroprudential tools may have complementary effects to LTV, and for large size banks in particular.

Keywords: Macroprudential policy; Financial stability; Mortgage credit creation (search for similar items in EconPapers)
JEL-codes: C23 E58 G21 G28 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:37:y:2019:i:c:p:89-103

DOI: 10.1016/j.jfi.2018.10.001

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