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Easing of Borrower-Based Measures: Evidence from Czech Loan-Level Data

Author

Listed:
  • Martin Hodula
  • Lukas Pfeifer
  • Ngoc Anh Ngo

Abstract

We analyze how a large-scale easing of borrower-based measures affects residential mortgage credit and borrower characteristics. We exploit a case of the easing of the LTV limit and the complete abolition of DTI and DSTI limits in the Czech Republic in the first half of 2020. Our empirical evidence suggests that the households affected increased their borrowing and purchased more expensive houses while being able to decrease the collateral value. We also document a significant increase in borrowers' debt (service) but this was softened by the concurrent growth in borrowers' income. While exploring the heterogeneity in the transmission of the regulatory easing, we find that: (i) LTV-constrained borrowers showed signs of cash-retention behavior while DTI- and DSTI-constrained borrowers acted in line with the financial accelerator mechanism; (ii) relaxing the LTV limit had a larger effect in poorer districts while the abolition of DTI and DSTI limits affected borrowers in richer regions; (iii) younger borrowers were more affected by the easing of LTV and DTI limits, while the easing of the DSTI limit affected older borrowers; (iv) relaxing the LTV limit affected mostly first-time borrowers while abolishing the DTI and DSTI limits affected mostly second-time borrowers who obtained higher mortgages and purchased more expensive property.

Suggested Citation

  • 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.
  • Handle: RePEc:cnb:wpaper:2023/18
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    References listed on IDEAS

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    More about this item

    Keywords

    Borrower-based measures; household finance; loosening; macroprudential policy;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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

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