Macroprudential Policy, Mortgage Cycles, and Distributional Effects: Evidence from the United Kingdom

Jose-Luis Peydro, Francesc Rodriguez-Tous, Jagdish Tripathy and Arzu Uluc

The Review of Financial Studies, 2024, vol. 37, issue 3, 727-760

Abstract: We analyze the distributional effects of macroprudential policy on mortgage cycles by exploiting the U.K. mortgage register and a 2014 15% limit imposed on lenders’ high loan-to-income (LTI) mortgages. Constrained lenders issue fewer and more expensive high-LTI mortgages, with stronger effects on low-income borrowers. Unconstrained lenders strongly substitute high-LTI loans in local areas with higher constrained lender presence, but not high-LTI loans to low-income borrowers—consistent with adverse selection problems—implying lower overall credit to low-income borrowers. Consistently, policy-affected areas experience lower house price growth postregulation and, following the Brexit referendum (negative aggregate shock), better house price growth and lower mortgage defaults for low-income borrowers.

Keywords: E5; G01; G21; G28; G51 (search for similar items in EconPapers)
Date: 2024
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