Minimum down payment requirement: a macroprudential tool that is increasingly being used to mitigate real estate risk

The excessive rises in real estate prices and in household indebtedness are the focus of particular scrutiny on the part of macroprudential authorities. To limit the potentially negative effects for financial stability and for the economy in general, national authorities have a number of macroprudential tools they can use to adjust the supply of mortgage credit. In the European Union, authorities mainly rely on macroprudentiel measures targeted at borrowers, such as minimum down payment requirements (i.e. limits on loan-to-value ratios). These tools have helped to improve lending practices among banks, leading to a decline in the volume of risky new mortgage loans (i.e. zero down payment, very high debt-service-to-income ratio, very long loan maturity, etc.). However, it is still too early to assess the long-term effectiveness of these measures, and in particular whether they have succeeded in moderating house prices.