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Borrower-based measures, house prices and household debt

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  • Caloia, Francesco G.

Abstract

This paper quantifies the credit-driven housing demand and the role of macro-prudential Loan-to-Income (LTI) and Loan-to-Value (LTV) limits. Using granular and time-varying changes in borrowing capacity, I estimate how shocks in credit availability feed into credit demand and affect household debt. The findings indicate a robust relationship between debt and borrowing capacity that amplifies throughout a housing boom. The relationship is heterogeneous, as changes in borrowing capacity have larger effects among low-income and first-time buyers and in expensive property markets. If no downpayment is required, tightening the LTV limit may not contain borrowing capacity but still curbs leverage among highly-indebted borrowers.

Suggested Citation

  • Caloia, Francesco G., 2024. "Borrower-based measures, house prices and household debt," Journal of International Money and Finance, Elsevier, vol. 143(C).
    • Handle: RePEc:eee:jimfin:v:143:y:2024:i:c:s026156062400038x
    DOI: 10.1016/j.jimonfin.2024.103051
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    More about this item

    Keywords

    Borrower-based measures; Macro-prudential policy; LTV; LTI;
    All these keywords.

    JEL classification:

    • 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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