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Inefficient Regulation: Mortgages versus Total Credit

Author

Listed:
  • Artashes Karapetyan
  • Jens Soerlie Kvaerner
  • Maximilian Rohrer

Abstract

We estimate the willingness-to-pay to bypass a loan-to-value (LTV) cap. Our identification relies on exogenous variation in debt exempt from the LTV regulation that can only be used as a substitute for a personal mortgage. Our baseline estimate reveals that homebuyers pay 7.3 Swedish Kroner (SEK) to avoid 1 SEK of equity down payment. The supply of debt not part of the LTV calculation increased by approximately 50% within 2 years after the LTV regulation. Financially weaker households drive the results.

Suggested Citation

  • Artashes Karapetyan & Jens Soerlie Kvaerner & Maximilian Rohrer, 2024. "Inefficient Regulation: Mortgages versus Total Credit," Review of Finance, European Finance Association, vol. 28(1), pages 311-351.
    • Handle: RePEc:oup:revfin:v:28:y:2024:i:1:p:311-351.
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    File URL: http://hdl.handle.net/10.1093/rof/rfad023
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    More about this item

    Keywords

    Loan-to-value; Macro-prudential regulation; Mortgages; Regulatory arbitrage;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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