Inefficient Regulation: Mortgages versus Total Credit*

Artashes Karapetyan, Jens Soerlie Kvaerner and Maximilian Rohrer

Review of Finance, 2024, vol. 28, issue 1, 311-351

Abstract: We estimate the willingness-to-pay to bypass a loan-to-value (LTV) cap. Our identification relies on exogenous variation in debt exempt from the LTV regulation that can only be used as a substitute for a personal mortgage. Our baseline estimate reveals that homebuyers pay 7.3 Swedish Kroner (SEK) to avoid 1 SEK of equity down payment. The supply of debt not part of the LTV calculation increased by approximately 50% within 2 years after the LTV regulation. Financially weaker households drive the results.

Keywords: Loan-to-value; Macro-prudential regulation; Mortgages; Regulatory arbitrage (search for similar items in EconPapers)
JEL-codes: D14 G23 G28 G51 R30 (search for similar items in EconPapers)
Date: 2024
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