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The Effect of Credit Constraints on Housing Choices: The Case of LTV limit

Nitzan Tzur-Ilan ()
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Nitzan Tzur-Ilan: Bank of Israel

No 2017.03, Bank of Israel Working Papers from Bank of Israel

Abstract: This paper examines the effects of a Loan-to-Value (LTV) limit on households’ choices in the credit and housing markets. Using a large and novel micro database from Israel, including rich information on loans, borrowers and acquired assets, and using matching techniques, I find that the LTV limit had an effect on the mortgage contract terms (higher interest rates), but did not lead to credit rationing (no segment of the population is excluded from the market). The LTV limit induced borrowers to buy cheaper assets and to move farther from high demand areas to lower graded neighborhoods. The conclusion is that the LTV limit, the most common macroprudential policy tool, has an impact not only from a financial stability perspective, by reducing the leverage of households, but also affected their choices in the housing market.

Keywords: LTV; macroprudential; mortgages; housing; regulation; central; banks (search for similar items in EconPapers)
JEL-codes: E58 R1 R2 R3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-mac and nep-ure
Date: 2017-03
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