Cooling the Mortgage Loan Market: The Effect of Recommended Borrower-Based Limits on New Mortgage Lending

Martin Hodula, Milan Szabo, Lukas Pfeifer and Martin Melecký

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper studies the effects of regulatory recommendations concerning maximum (i) loan-to-value (LTV), (ii) debt-to-income (DTI) and (iii) debt service-to-income ratios (DSTI) on new loans secured by residential property. It uses loan-level regulatory survey data on about 82,000 newly granted residential mortgage loans in the Czech Republic from 2016 to 2019 to estimate the average effects of the Czech National Bank's regulatory recommendations and their heterogeneous effects depending on borrower, loan, bank and regional characteristics. The studied response variables include the mortgage loan size and lending rate and the value of the property with which loans are secured. The machine learning method of causal forests is employed to estimate the effects of interest and to identify any heterogeneity and its likely drivers. We highlight two important facts: (i) value-based (LTV) and income-based (DTI and DSTI) limits have different impacts on the mortgage market and (ii) borrower, loan, bank and regional characteristics play an important role in the transmission of the recommended limits.

Keywords: Borrower-based measures; causal forests; Czech Republic; macroprudential recommendations; residential mortgage loans (search for similar items in EconPapers)
JEL-codes: E44 G21 G28 G51 R31 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cwa, nep-mac, nep-rmg, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cnb.cz/export/sites/cnb/en/economic-re ... wp/cnbwp_2022_03.pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2022/3

Access Statistics for this paper

More papers in Working Papers from Czech National Bank, Research and Statistics Department Contact information at EDIRC.
Bibliographic data for series maintained by Tomas Karhanek ().