Adjusting to Macroprudential Policies: Loan-to-Value Limits and Housing Choice

Nitzan Tzur-Ilan and Tarun Ramadorai

The Review of Financial Studies, 2023, vol. 36, issue 10, 3999-4044

Abstract: This study provides novel evidence regarding the effects of loan-to-value (LTV) limits on housing choices. Using a detailed loan-level dataset, I exploit the introduction of LTV limits in Israel. I find that the LTV limits led borrowers to choose housing units that were more affordable, farther from the central business district, and in lower socioeconomic neighborhoods. Additionally, these LTV limits increase interest rates and decrease loan amounts. The findings of this study indicate that macroprudential policies, which focus on the stability of the financial system, have micro implications on location choices, commuting costs, and movement to less-advantaged areas.

Keywords: G28; R51 (search for similar items in EconPapers)
Date: 2023
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