Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending

Martin Hodula, Martin Melecký, Lukáš Pfeifer and Milan Szabo

Journal of International Money and Finance, 2023, vol. 132, issue C

Abstract: This paper studies the effects of regulatory measures concerning maximum loan-to-value (LTV), debt-to-income (DTI), and debt service-to-income ratios (DSTI) on new loans secured by residential property. It uses loan-level regulatory survey data on about 82,000 newly granted residential mortgage loans in Czechia from 2016 to 2019 to estimate the average effects of regulatory measures and their heterogeneous effects depending on borrower, loan, bank, and regional characteristics. We find that the LTV limits decreased the mortgage loan size only slightly, while the value of collateral securing the loans increased. Only the additional DTI and DSTI limits helped reduce the average loan size significantly and prompted more risk-sensitive pricing that heighten the average lending rate. The mortgage market response to the limits appears heterogeneous in loan size rather than pricing or collateralization. The loan size reduction varied with the borrower’s income, age, and location. High-income, high-repayment, and 25 to 35 years old borrowers reduced their contracted loan size more. Borrowers located in regions with higher GDP per capita and lower unemployment rates reduced the contracted loan size more. Longer-maturity loans showed a greater drop in the contracted loan size.

Keywords: Borrower-based measures; Causal forests; Czech Republic; Macroprudential recommendations; Residential mortgage loans (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 G51 R31 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:132:y:2023:i:c:s0261560623000098

DOI: 10.1016/j.jimonfin.2023.102808

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