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Macroprudential Policy and mortgage leverage decisions—Evidence from micro data

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  • Saha, Asish
  • Rooj, Debasis
  • Sengupta, Reshmi

Abstract

This paper examines the behavioral responses of mortgage loan borrowers to Macroprudential Policy (MPP) its transmission channel, and the lag effect. We also explore the effectiveness of lender-based instruments Using borrower-level loan data from an Indian bank with a national presence from 2010 to 2021, we find that MPP tightening leads to a decline in borrower leverage. The impact is primarily channeled through downpayment changes rather than the cost of housing. The heterogeneous analysis reveals that the relaxation in MPP norms to promote affordable housing has helped middle-income groups in their mortgage decisions. A disaggregated analysis shows that risk weights have a stronger impact than LTV limits and provisioning requirements, suggesting that banks are capital-conscious in their lending decisions. Overall, the findings stress that MPPs, especially the timely intervention concerning risk weights have been effective in managing the borrowing risk thereby ensuring stability in the mortgage market.

Suggested Citation

  • Saha, Asish & Rooj, Debasis & Sengupta, Reshmi, 2023. "Macroprudential Policy and mortgage leverage decisions—Evidence from micro data," Economic Analysis and Policy, Elsevier, vol. 80(C), pages 1430-1444.
    • Handle: RePEc:eee:ecanpo:v:80:y:2023:i:c:p:1430-1444
    DOI: 10.1016/j.eap.2023.10.011
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    1. Rooj, Debasis & Banerjee, Anurag & Sengupta, Reshmi, 2024. "Impact of macroprudential policies on house price expectations- evidence from survey data," Economics Letters, Elsevier, vol. 236(C).

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    More about this item

    Keywords

    Macroprudential policy; Mortgage loans; Loan-to-value ratio; Transmission channels;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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