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Take it to the Limit? The Effects of Household Leverage Caps

Author

Listed:
  • Sjoerd van Bekkum
  • Marc Gabarro
  • Rustom M. Irani
  • José-Luis Peydró

Abstract

We analyze the effects of borrower-based macroprudential policy at the household-level. For identification, we exploit administrative Dutch tax-return and property ownership data linked to the universe of housing transactions, and the introduction of a mortgage loan-to-value limit. The regulation reduces mortgage leverage, with bunching in its limit. Ex-ante more-affected households substantially reduce overall leverage and debt servicing costs but consume greater liquidity to satisfy the regulation. Improvements in household solvency result in less financial distress and, given negative idiosyncratic shocks, better liquidity management. However, fewer households transition from renting into ownership. All of these effects are stronger for liquidity-constrained households.

Suggested Citation

  • Sjoerd van Bekkum & Marc Gabarro & Rustom M. Irani & José-Luis Peydró, 2019. "Take it to the Limit? The Effects of Household Leverage Caps," Working Papers 1132, Barcelona Graduate School of Economics.
    • Handle: RePEc:bge:wpaper:1132
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    More about this item

    Keywords

    macroprudential policy; financial regulation; residential mortgages; household finance; household leverage; loan-to-value ratio;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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

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