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

Rustom M Irani, Sjoerd van Bekkum, Marc Gabarro and Peydró, José-Luis
Authors registered in the RePEc Author Service: Jose-Luis Peydro

No 13503, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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; Residential mortgages; Solvency vs. liquidity tradeoff; Household leverage; Loan-to-value ratio (search for similar items in EconPapers)
JEL-codes: E21 E58 G21 G28 G51 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Working Paper: Take it to the Limit? The Effects of Household Leverage Caps (2019)
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