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Macroprudential policy and housing market expectations

Author

Listed:
  • Kuang, Pei
  • Mitra, Kaushik
  • Tang, Li
  • Xie, Shihan

Abstract

This paper studies how macroprudential policy changes affect consumers’ housing market expectations and housing affordability perceptions in the United Kingdom. We conduct a large-scale online survey experiment presenting hypothetical changes of three borrower-based macroprudential tools: residential loan-to-value (LTV), buy-to-let LTV, and loan-to-income ratios. We find that policy tightening lowers house price expectations, reduces homebuying intentions, and worsens affordability assessments, while loosening has the opposite effects. The residential LTV ratio is the most effective tool. To interpret these findings, we embed our survey estimates into a dynamic model linking expectations, credit, and housing demand. The model shows that immediate belief shifts significantly amplify house price and consumption responses, highlighting the importance of expectations in the transmission of macroprudential policy.

Suggested Citation

  • Kuang, Pei & Mitra, Kaushik & Tang, Li & Xie, Shihan, 2026. "Macroprudential policy and housing market expectations," European Economic Review, Elsevier, vol. 181(C).
    • Handle: RePEc:eee:eecrev:v:181:y:2026:i:c:s0014292125002417
    DOI: 10.1016/j.euroecorev.2025.105191
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    Keywords

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    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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