Unintended Consequences of Credit Constraints on Housing: The Case of LTV Limits

Speaker
Nitzan Tzur-Ilan
Date
05/11/2018 - 12:30 - 11:10Add To Calendar 2018-11-05 11:10:00 2018-11-05 12:30:00 Unintended Consequences of Credit Constraints on Housing: The Case of LTV Limits This paper examines the effects of a Loan-to-Value (LTV) limit on household choices in the credit and housing markets. Using a large and novel household-level database from Israel with detailed information on loans, borrower characteristics, and acquired housing units, and applying matching techniques, I find that the LTV limit had an effect on mortgage contract terms, but did not lead to credit rationing (no segment of the population was excluded from the market). I also find that the LTV limit induced borrowers to buy cheaper and lower-quality housing units and to move farther from high demand areas to lower-quality neighborhoods. I conclude that an LTV limit, the most common macroprudential policy (MPP) tool, affects not only financial stability by reducing the leverage of households, but also the decisions of borrowers in the housing market. Economics Building (504). Room 011 אוניברסיטת בר-אילן - Department of Economics Economics.Dept@mail.biu.ac.il Asia/Jerusalem public
Place
Economics Building (504). Room 011
Affiliation
Bank of Israel & HUJI
Abstract

This paper examines the effects of a Loan-to-Value (LTV) limit on household choices in the credit and housing markets. Using a large and novel household-level database from Israel with detailed information on loans, borrower characteristics, and acquired housing units, and applying matching techniques, I find that the LTV limit had an effect on mortgage contract terms, but did not lead to credit rationing (no segment of the population was excluded from the market). I also find that the LTV limit induced borrowers to buy cheaper and lower-quality housing units and to move farther from high demand areas to lower-quality neighborhoods. I conclude that an LTV limit, the most common macroprudential policy (MPP) tool, affects not only financial stability by reducing the leverage of households, but also the decisions of borrowers in the housing market.

Last Updated Date : 04/12/2022