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Take it to the Limit? The Effects of Household Leverage Caps

Sjoerd van Bekkum, Marc Gabarro, Rustom M. Irani and Jose-Luis Peydro ()

No 1132, Working Papers from Barcelona Graduate School of Economics

Abstract: We analyze the effects of borrower-based macroprudential policy at the household-level. For identification, we exploit administrative Dutch tax-return and property ownership data linked to the universe of housing transactions, and the introduction of a mortgage loan-to-value limit. The regulation reduces mortgage leverage, with bunching in its limit. Ex-ante more-affected households substantially reduce overall leverage and debt servicing costs but consume greater liquidity to satisfy the regulation. Improvements in household solvency result in less financial distress and, given negative idiosyncratic shocks, better liquidity management. However, fewer households transition from renting into ownership. All of these effects are stronger for liquidity-constrained households.

Keywords: macroprudential policy; financial regulation; residential mortgages; household finance; household leverage; loan-to-value ratio (search for similar items in EconPapers)
JEL-codes: D14 D31 E21 E58 G21 G28 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-cba and nep-mac
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