LTV and DTI Limits—Going Granular
Luis Jácome () and
No 15/154, IMF Working Papers from International Monetary Fund
There is increasing interest in loan-to-value (LTV) and debt-service-to-income (DTI) limits as many countries face a new round of rising house prices. Yet, very little is known on how these regulatory instruments work in practice. This paper contributes to fill this gap by looking closely at their use and effectiveness in six economies—Brazil, Hong Kong SAR, Korea, Malaysia, Poland, and Romania. Insights include: rapid growth in high-LTV loans with long maturities or in the number of borrowers with multiple mortgages can be signs of build up in systemic risk; monitoring nonperforming loans by loan characteristics can help in calibrating changes in the LTV and DTI limits; as leakages are almost inevitable, countries strive to address them at an early stage; and, in most cases, LTVs and DTIs were effective in reducing loan-growth and improving debt-servicing performances of borrowers, but not always in curbing house price growth.
Keywords: Housing; Financial stability; Macroprudential Policy; Central banks and their policies; loan-to-value ratios, debt-service-to income ratios, house price growth, credit growth, credit, loans, loan, mortgage, debt, Financial Markets and the Macroeconomy, Government Policy and Regulation, credit growth., (search for similar items in EconPapers)
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