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LTV vs. DTI Constraints: When Did They Bind, and How Do They Interact?

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  • Marcus Ingholt

    (University of Copenhagen)

Abstract

I document that the elasticity of mortgage loan origination with respect to house prices is highly dependent on the change in personal incomes and vice versa, using U.S. county-level panel data. I rationalize this in a model with two occasionally binding borrowing constraints: a loan-to-value (LTV) constraint and a debt-service-to-income (DTI) constraint. A Bayesian estimation of the model infers when the LTV and DTI constraints have been binding during 1975-2017, and which shocks that caused them to bind. A macroprudential experiment shows that countercyclical LTV limits cannot dampen mortgage debt growth in expansions, but DTI limits can.

Suggested Citation

  • Marcus Ingholt, 2018. "LTV vs. DTI Constraints: When Did They Bind, and How Do They Interact?," 2018 Meeting Papers 866, Society for Economic Dynamics.
    • Handle: RePEc:red:sed018:866
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    References listed on IDEAS

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    Cited by:

    1. Varadi, Alexandra, 2021. "Identifying the transmission channels of credit supply shocks to household debt: price and non-price effects," Bank of England working papers 927, Bank of England.
    2. Millard, Stephen & Rubio, Margarita & Varadi, Alexandra, 2021. "The macroprudential toolkit: effectiveness and interactions," Bank of England working papers 902, Bank of England.
    3. Stephen Millard, & Margarita Rubio & Alexandra Varadi, 2020. "The impact of Covid-19 on productivity," Discussion Papers 2020/14, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).

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