The Effects of Macroprudential Policy on Borrower Leverage
Yvonne McCarthy () and
Conor O'Toole ()
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Christina Kinghan: Central Bank of Ireland
No 08/EL/16, Economic Letters from Central Bank of Ireland
This Economic Letter explores the effects of the recent macroprudential measures in the mortgage market on the leverage of Irish borrowers. Using loan-by-loan data from before and after the measures, we test how loan-to-income (LTI) and loan-to-value (LTV) ratios have changed for First Time Buyers (FTBs) and Second and Subsequent Buyers (SSBs). A number of findings emerge. The average (mean) LTV and LTI ratios increased slightly after the introduction of the regulations for both FTBs and SSBs. However, the opposite pattern is observed for high leverage borrowers. For FTBs with an LTV of 80 per cent or above, the average borrower registered a small reduction in their LTV after the regulations. This result was only present for higher income borrowers, i.e. FTBs at the lower end of the income distribution had the same average. LTV pre- and post-regulations. SSBs with an LTV of 80 per cent and above also had a lower LTV after the regulations, but the effect was more pronounced than for FTBs. Few borrowers experienced a tightening of LTIs following the measures; we find only a limited effect among high leverage SSB borrowers.
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