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Macroprudential Policy, Mortgage Cycles, and Distributional Effects: Evidence from the United Kingdom

Author

Listed:
  • José-Luis Peydró
  • Francesc Rodriguez-Tous
  • Jagdish Tripathy
  • Arzu Uluc

Abstract

We analyze the distributional effects of macroprudential policy on mortgage cycles by exploiting the U.K. mortgage register and a 2014 15% limit imposed on lenders’ high loan-to-income (LTI) mortgages. Constrained lenders issue fewer and more expensive high-LTI mortgages, with stronger effects on low-income borrowers. Unconstrained lenders strongly substitute high-LTI loans in local areas with higher constrained lender presence, but not high-LTI loans to low-income borrowers—consistent with adverse selection problems—implying lower overall credit to low-income borrowers. Consistently, policy-affected areas experience lower house price growth postregulation and, following the Brexit referendum (negative aggregate shock), better house price growth and lower mortgage defaults for low-income borrowers.

Suggested Citation

  • José-Luis Peydró & Francesc Rodriguez-Tous & Jagdish Tripathy & Arzu Uluc, 2024. "Macroprudential Policy, Mortgage Cycles, and Distributional Effects: Evidence from the United Kingdom," The Review of Financial Studies, Society for Financial Studies, vol. 37(3), pages 727-760.
    • Handle: RePEc:oup:rfinst:v:37:y:2024:i:3:p:727-760.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad070
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    Citations

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    Cited by:

    1. Muellbauer, John, 2024. "Housing and Macroprudential Policy," CEPR Discussion Papers 19702, Centre for Economic Policy Research.
    2. Ji, Zihao & Zhang, Mengchen & Wang, Guan & Zhang, Hongru, 2026. "The Solvency Paradox: How Risk-Based Mortgage Pricing Transforms Credit Rationing into Delayed Default," MPRA Paper 128531, University Library of Munich, Germany.
    3. Mahmoud Fatouh & Benjamin Guin & Haluk Unal, 2026. "Product innovation in the UK mortgage market: the case of green mortgages," Bank of England Staff Working Paper series 1167, Bank of England.
    4. Koetter, Michael & Winter, Birte & Wöbbeking, Carl Fabian, 2025. "The price of beauty: Biodiversity effects on residential housing markets," IWH Discussion Papers 21/2025, Halle Institute for Economic Research (IWH).
    5. Kuang, Pei & Mitra, Kaushik & Tang, Li & Xie, Shihan, 2026. "Macroprudential policy and housing market expectations," European Economic Review, Elsevier, vol. 181(C).
    6. Kothari, Navni, 2026. "Does Directed Lending Affect Monetary Policy Transmission? - Evidence from India," Discussion Paper 2026-011, Tilburg University, Center for Economic Research.
    7. Koetter, Michael & Noth, Felix & Wöbbeking, Carl Fabian, 2025. "Contractionary macroprudential policy, collateral valuation, and risk-shifting in EU banking," IWH Discussion Papers 4/2025, Halle Institute for Economic Research (IWH), revised 2025.
    8. José-Luis Peydró & Francesc Rodriguez-Tous & Jagdish Tripathy & Arzu Uluc, 2025. "Distributional consequences of borrower-based macroprudential tools," Bank of England Staff Working Paper series 1151, Bank of England.
    9. Kothari, Navni, 2026. "Does Directed Lending Affect Monetary Policy Transmission? - Evidence from India," Other publications TiSEM 826ffb11-2ce1-4b69-8648-6, Tilburg University, School of Economics and Management.
    10. van Bekkum, Sjoerd & Gabarro, Marc & Irani, Rustom M. & Peydró, José-Luis, 2024. "The real effects of borrower-based macroprudential policy: Evidence from administrative household-level data," Journal of Monetary Economics, Elsevier, vol. 147(S).
    11. Bolliger, Elio & Bruhin, Adrian & Fuster, Andreas & Ganarin, Maja, 2025. "The effect of macroprudential policies on homeownership: Evidence from Switzerland," Journal of Urban Economics, Elsevier, vol. 146(C).
    12. Alper, Koray & Baskaya, Soner & Shi, Shuren, 2025. "How do macroprudential policies affect corporate investment? Insights from EIBIS data," EIB Working Papers 2025/02, European Investment Bank (EIB).

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    Keywords

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    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • G01 - Financial Economics - - General - - - Financial Crises
    • 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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