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Do Loan-to-Value Ratio Regulation Changes Affect Canadian Mortgage Credit?

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  • Kronick, Jeremy

Abstract

ABSTRACT: This paper investigates the relationship in the Canadian housing market between loan-to-value (“LTV”) ratios and residential mortgage credit over the 1981-2012 time period. More specifically, I look to determine whether LTV ratio regulation provides a mechanism with which to slow down the potentially overheated Canadian housing market. Due to the endogeneity of many macroeconomic variables, I use a structural vector autoregression (“SVAR”) to investigate this question. Results indicate that three of the four major LTV regulation changes that occurred during this timeframe either had insignificant effects on mortgage credit, or caused it to move contrary to expectations. Only the 2008 tightening of LTV was weakly significant. Therefore, regulation changes to LTV ratios are unlikely to be successful in slowing down the overheated housing market in Canada, which may force central bankers to use broader monetary policy or other forms of macroprudential regulation.

Suggested Citation

  • Kronick, Jeremy, 2015. "Do Loan-to-Value Ratio Regulation Changes Affect Canadian Mortgage Credit?," MPRA Paper 73671, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:73671
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    Cited by:

    1. Jeremy Kronick, 2017. "Spendthrifts and Savers: Are Canadians Acting Like they are “House Poor” or “House Rich”?," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 482, June.
    2. Péter Fáykiss, Márton Nagy and Anikó Szombati, 2017. "Regionally-differentiated debt cap rules: a Hungarian perspective," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy frameworks, implementation and relationships with other policies, volume 94, pages 153-178, Bank for International Settlements.
    3. Péter Fáykiss & Alexandr Palicz & János Szakács & Márton Zsigó, 2018. "Experiences of Debt Cap Regulations in Hungarian Retail Lending," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(1), pages 34-61.

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    More about this item

    Keywords

    Mortgage credit; macroprudential regulation; loan-to-value; monetary policy; Canada;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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

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