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Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending

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  • Hodula, Martin
  • Melecký, Martin
  • Pfeifer, Lukáš
  • Szabo, Milan

Abstract

This paper studies the effects of regulatory measures concerning maximum loan-to-value (LTV), debt-to-income (DTI), and debt service-to-income ratios (DSTI) on new loans secured by residential property. It uses loan-level regulatory survey data on about 82,000 newly granted residential mortgage loans in Czechia from 2016 to 2019 to estimate the average effects of regulatory measures and their heterogeneous effects depending on borrower, loan, bank, and regional characteristics. We find that the LTV limits decreased the mortgage loan size only slightly, while the value of collateral securing the loans increased. Only the additional DTI and DSTI limits helped reduce the average loan size significantly and prompted more risk-sensitive pricing that heighten the average lending rate. The mortgage market response to the limits appears heterogeneous in loan size rather than pricing or collateralization. The loan size reduction varied with the borrower’s income, age, and location. High-income, high-repayment, and 25 to 35 years old borrowers reduced their contracted loan size more. Borrowers located in regions with higher GDP per capita and lower unemployment rates reduced the contracted loan size more. Longer-maturity loans showed a greater drop in the contracted loan size.

Suggested Citation

  • Hodula, Martin & Melecký, Martin & Pfeifer, Lukáš & Szabo, Milan, 2023. "Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending," Journal of International Money and Finance, Elsevier, vol. 132(C).
    • Handle: RePEc:eee:jimfin:v:132:y:2023:i:c:s0261560623000098
    DOI: 10.1016/j.jimonfin.2023.102808
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    2. Patrick Rehill, 2024. "How do applied researchers use the Causal Forest? A methodological review of a method," Papers 2404.13356, arXiv.org.
    3. Martin Hodula & Lukas Pfeifer & Ngoc Anh Ngo, 2023. "Easing of Borrower-Based Measures: Evidence from Czech Loan-Level Data," Working Papers 2023/18, Czech National Bank.
    4. Jiri Gregor, 2024. "A Stress Test Approach to the Calibration of Borrower-Based Measures: A Case Study of the Czech Republic," Working Papers 2024/2, Czech National Bank.

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    More about this item

    Keywords

    Borrower-based measures; Causal forests; Czech Republic; Macroprudential recommendations; Residential mortgage loans;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • 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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