How does the credit constraint affect the house prices in the Netherlands?

The aftermath of the recent global financial crisis has led to a stricter macro prudential policy in the mortgage market in the Netherlands, which requires a graduate curtail in the maximum loan-to-value ratio. This policy change would no doubt exert substantial impact on the housing market, especially for the first time buyers. Given the substantial changes in the mortgage lending, the question arises that how would the stricter lending criteria affect the house prices? This paper tries to investigate the association between credit constraints and house prices.In a broad context, the macroprudential policies seem necessary and essential to reduce the vulnerability of the financial system, especially with the evidence of the subprime crisis. The credit rationing such as a tightened ceiling loan-to-value ratio is the widely used maroprudential policy in the housing market (Jácome and Mitra, 2015). The housing situation in the Netherlands, however, is unique in the context of Europe.Literature has demonstrated the strong linkage between mortgage lending and house prices, and this linage is only strengthened for Dutch market because households rely more on the mortgage loan to purchase a house due to the low saving rate . This study aims at exploring the channel through which maximum borrowing limit affects the house prices and attempts to provide a theoretical model to interpret the channel between them. Two measurements of the maximum borrowing limit are used to identify the influence of shrinking credit offering on house prices. Particularly, we are driven to investigate the potential consequences or impacts on the ownership market in a scenario of stricter lending policy. The results are expected to give some hints on the future of the housing market.