Distributional consequences of borrower-based macroprudential tools

This paper provides an overview of evidence from a range of country-specific studies on the effectiveness of borrower-based macroprudential tools which limit household leverage at the borrower level. Most studies find these measures effective in breaking the self-enforcing loop between household leverage and house prices. These measures have beneficial effects in terms of lower defaults and less volatile house price dynamics during periods of economic distress. Their effects are heterogeneous across borrower types, with stronger impacts where leverage requirements are higher, such as among first-time buyers. Studies point to restrictions on household leverage having downstream effects on job search, location choice, homeownership, and exposure to income shocks. Looking ahead, further research is required to conduct a comprehensive cost-benefit analysis of these measures, to adapt them to increased use of technology in financial intermediation, and to examine their broader societal effects, including political outcomes and mental health.