Mortgage borrowers at the loan-to-income limit
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Edward Gaffney: Central Bank of Ireland
No 11/FS/19, Financial Stability Notes from Central Bank of Ireland
I show that lenders respond to Ireland’s macroprudential mortgage measures by reducing lending and leverage to households seeking high loan-to-income ratios. Applying a bunching estimator to supervisory mortgage records in Ireland, it is shown that at least one in eight owner-occupier borrowers in 2018 took on less debt than they would have if there were no loan-to-income limit. The total reduction is at least one-half of one per cent of all new mortgage lending. Households at the limit earn less than other borrowers and are more likely to be single-income, two characteristics that have been associated historically with higher credit risk. These households reduce leverage by committing more gifts and non-earned deposits than other borrowers. The results suggest that due to the loan-to-income regulation, households with high credit-risk characteristics tend to borrow less, easing their burdens of leverage and debt service.
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