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The Effects of Macroprudential Policy on Borrower Leverage

Author

Listed:
  • Kinghan, Christina

    (Central Bank of Ireland)

  • McCarthy, Yvonne

    (Central Bank of Ireland)

  • O'Toole, Conor

    (Central Bank of Ireland)

Abstract

This Economic Letter explores the effects of the recent macroprudential measures in the mortgage market on the leverage of Irish borrowers. Using loan-by-loan data from before and after the measures, we test how loan-to-income (LTI) and loan-to-value (LTV) ratios have changed for First Time Buyers (FTBs) and Second and Subsequent Buyers (SSBs). A number of findings emerge. The average (mean) LTV and LTI ratios increased slightly after the introduction of the regulations for both FTBs and SSBs. However, the opposite pattern is observed for high leverage borrowers. For FTBs with an LTV of 80 per cent or above, the average borrower registered a small reduction in their LTV after the regulations. This result was only present for higher income borrowers, i.e. FTBs at the lower end of the income distribution had the same average. LTV pre- and post-regulations. SSBs with an LTV of 80 per cent and above also had a lower LTV after the regulations, but the effect was more pronounced than for FTBs. Few borrowers experienced a tightening of LTIs following the measures; we find only a limited effect among high leverage SSB borrowers.

Suggested Citation

  • Kinghan, Christina & McCarthy, Yvonne & O'Toole, Conor, 2016. "The Effects of Macroprudential Policy on Borrower Leverage," Economic Letters 08/EL/16, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:08/el/16
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    File URL: https://centralbank.ie/docs/default-source/publications/economic-letters/economic-letter-vol-2016-no-08.pdf?sfvrsn=8
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    References listed on IDEAS

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    1. Mr. Luis Ignacio Jácome & Ms. Srobona Mitra, 2015. "LTV and DTI Limits—Going Granular," IMF Working Papers 2015/154, International Monetary Fund.
    2. Kinghan, Christina & Lyons, Paul & McCarthy, Yvonne & O'Toole, Conor, 2016. "Macroprudential Measures and Irish Mortgage Lending: Insights from H1 2016," Economic Letters 06/EL/16, Central Bank of Ireland.
    3. Cerutti, Eugenio & Claessens, Stijn & Laeven, Luc, 2017. "The use and effectiveness of macroprudential policies: New evidence," Journal of Financial Stability, Elsevier, vol. 28(C), pages 203-224.
    4. Keenan, Enda & Kinghan, Christina & McCarthy, Yvonne & O'Toole, Conor, 2016. "Macroprudential Measures and Irish Mortgage Lending: A Review of Recent Data," Economic Letters 03/EL/16, Central Bank of Ireland.
    5. Kelly, Robert & McCann, Fergal & O’Toole, Conor, 2018. "Credit conditions, macroprudential policy and house prices," Journal of Housing Economics, Elsevier, vol. 41(C), pages 153-167.
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    Cited by:

    1. Lydon, Reamonn & McCann, Fergal, 2017. "The income distribution and the Irish mortgage market," Economic Letters 05/EL/17, Central Bank of Ireland.
    2. Conor O'Toole & Kieran McQuinn & Philip Economides, 2021. "Household savings constraints, uncertainty and macroprudential policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 68(2), pages 238-260, May.
    3. Kinghan, Christina & Lyons, Paul & Mazza, Elena, 2018. "Macroprudential Measures and Irish Mortgage Lending: An Overview of 2017," Financial Stability Notes 1/FS/18, Central Bank of Ireland.
    4. Kinghan, Christina, 2018. "Macroprudential Measures and Irish Mortgage Lending: Insights from H1 2018," Financial Stability Notes 8/FS/18, Central Bank of Ireland.
    5. Kinghan, Christina & Lyons, Paul & McCarthy, Yvonne, 2017. "Macroprudential Measures and Irish Mortgage Lending: Insights from H1 2017," Economic Letters 13/EL/17, Central Bank of Ireland.
    6. Kinghan, Christina, 2018. "Macroprudential Measures and Irish Mortgage Lending: Insights from H1 2018," Financial Stability Notes 08-18, Central Bank of Ireland.
    7. Kinghan, Christina & Lyons, Paul & Mazza, Elena, 2018. "Macroprudential Measures and Irish Mortgage Lending: An Overview of 2017," Financial Stability Notes 01-18, Central Bank of Ireland.

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