LTV and DTI Limits—Going Granular

Luis Jácome and Srobona Mitra

No 2015/154, IMF Working Papers from International Monetary Fund

Abstract: 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: WP; loan-to-value; borrower; auto loan; loan; financial stability; macroprudential policy; loan-to-value ratios; debt-service-to income ratios; house price growth; credit growth; DTI limit; DTI measure; loan tenor; LTV-DTI policy; DTI ratio; housing loan; Mortgages; Loans; Housing prices; Credit; Macroprudential policy instruments; Global (search for similar items in EconPapers)
Pages: 41
Date: 2015-07-15
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Citations: View citations in EconPapers (36)

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