IDEAS home Printed from https://ideas.repec.org/p/cbi/ecolet/14-el-14.html

Do first time buyers default less? Implications for macro-prudential policy

Author

Listed:
  • Kelly, Robert

    (Central Bank of Ireland)

  • O'Malley, Terry

    (Central Bank of Ireland)

  • O'Toole, Conor

    (Central Bank of Ireland)

Abstract

Macro-prudential policy is designed to address risk at a systemwide level, an example of which is mortgage default following excessive residential property lending in Ireland. Policy tools to address this risk, such as caps on loan- to-value and loan-to-income ratios, are used to build balance sheet resilience and by design should re ect the risk profile of borrower groups. This research considers whether default rates are different between first time buyers and second and subsequent buyers and finds that first time buyers have lower default rates having controlled for borrower and loan characteristics. This research is consistent with differential regulatory treatment of first time buyers with default risk remaining comparable to the remainder of mortgage lending.

Suggested Citation

  • Kelly, Robert & O'Malley, Terry & O'Toole, Conor, 2014. "Do first time buyers default less? Implications for macro-prudential policy," Economic Letters 14/EL/14, Central Bank of Ireland.
    • Handle: RePEc:cbi:ecolet:14/el/14
    as

    Download full text from publisher

    File URL: https://centralbank.ie/docs/default-source/publications/economic-letters/economic-letter---vol-2014-no-14.pdf?sfvrsn=10
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. McCarthy, Yvonne & McQuinn, Kieran, 2013. "Credit conditions in a boom and bust property market," Research Technical Papers 08/RT/13, Central Bank of Ireland.
    2. Mr. Nicolas Arregui & Mr. Jaromir Benes & Mr. Ivo Krznar & Ms. Srobona Mitra & Mr. Andre O Santos, 2013. "Evaluating the Net Benefits of Macroprudential Policy: A Cookbook," IMF Working Papers 2013/167, International Monetary Fund.
    3. Claessens, Stijn & Ghosh, Swati R. & Mihet, Roxana, 2013. "Macro-prudential policies to mitigate financial system vulnerabilities," Journal of International Money and Finance, Elsevier, vol. 39(C), pages 153-185.
    4. John V. Duca & John Muellbauer & Anthony Murphy, 2011. "House Prices and Credit Constraints: Making Sense of the US Experience," Economic Journal, Royal Economic Society, vol. 121(552), pages 533-551, May.
    5. Gerlach, Stefan & Peng, Wensheng, 2005. "Bank lending and property prices in Hong Kong," Journal of Banking & Finance, Elsevier, vol. 29(2), pages 461-481, February.
    6. Anil K Kashyap & Richard Berner & Charles A E Goodhart, 2011. "The Macroprudential Toolkit," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 59(2), pages 145-161, June.
    7. Eric Wong & Andrew Tsang & Steven Kong, 2014. "How Does Loan-To-Value Policy Strengthen Banks' Resilience to Property Price Shocks - Evidence from Hong Kong," Working Papers 032014, Hong Kong Institute for Monetary Research.
    8. Wei Jiang & Ashlyn Aiko Nelson & Edward Vytlacil, 2014. "Liar's Loan? Effects of Origination Channel and Information Falsification on Mortgage Delinquency," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 1-18, March.
    9. Hallissey, Niamh & Kelly, Robert & O'Malley, Terry, 2014. "Macro-prudential Tools and Credit Risk of Property Lending at Irish banks," Economic Letters 10/EL/14, Central Bank of Ireland.
    10. Mr. Malhar S Nabar & Mr. Ashvin Ahuja, 2011. "Safeguarding Banks and Containing Property Booms: Cross-Country Evidenceon Macroprudential Policies and Lessons From Hong Kong SAR," IMF Working Papers 2011/284, International Monetary Fund.
    11. Ms. Deniz O Igan & Mr. Heedon Kang, 2011. "Do Loan-To-Value and Debt-To-Income Limits Work? Evidence From Korea," IMF Working Papers 2011/297, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kelly, Robert & McCann, Fergal, 2016. "Some defaults are deeper than others: Understanding long-term mortgage arrears," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 15-27.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kelly, Robert & O’Toole, Conor, 2018. "Mortgage default, lending conditions and macroprudential policy: Loan-level evidence from UK buy-to-lets," Journal of Financial Stability, Elsevier, vol. 36(C), pages 322-335.
    2. Kelly, Robert & O'Malley, Terence & O'Toole, Conor, 2015. "Designing Macro-prudential Policy in Mortgage Lending: Do First Time Buyers Default Less?," Research Technical Papers 02/RT/15, Central Bank of Ireland.
    3. Kelly, Robert & O'Toole, Conor, 2016. "Lending Conditions and Loan Default: What Can We Learn From UK Buy-to-Let Loans?," Research Technical Papers 04/RT/16, Central Bank of Ireland.
    4. 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.
    5. Cussen, Mary & O'Brien, Martin & Onorante, Luca & O'Reilly, Gerard, 2015. "Assessing the impact of macroprudential measures," Economic Letters 03/EL/15, Central Bank of Ireland.
    6. Gross, Marco & Población, Javier, 2017. "Assessing the efficacy of borrower-based macroprudential policy using an integrated micro-macro model for European households," Economic Modelling, Elsevier, vol. 61(C), pages 510-528.
    7. International Monetary Fund, 2016. "Ireland: Financial Sector Assessment Program: Technical Note-Macroprudential Policy Framework," IMF Staff Country Reports 2016/316, International Monetary Fund.
    8. Nitzan Tzur-Ilan, 2019. "Macroprudential Policy: Implementation, Effects, And Lessons," Israel Economic Review, Bank of Israel, vol. 17(1), pages 39-71.
    9. Dilyana Dimova & Ms. Piyabha Kongsamut & Mr. Jerome Vandenbussche, 2016. "Macroprudential Policies in Southeastern Europe," IMF Working Papers 2016/029, International Monetary Fund.
    10. Oriol Carreras & E Philip Davis & Rebecca Piggott, 2016. "Macroprudential tools, transmission and modelling," National Institute of Economic and Social Research (NIESR) Discussion Papers 470, National Institute of Economic and Social Research.
    11. Dimitrios Laliotis & Alejandro Buesa & Miha Leber & Javier Población, 2020. "An agent-based model for the assessment of LTV caps," Quantitative Finance, Taylor & Francis Journals, vol. 20(10), pages 1721-1748, October.
    12. Gabriele Galati & Richhild Moessner, 2018. "What Do We Know About the Effects of Macroprudential Policy?," Economica, London School of Economics and Political Science, vol. 85(340), pages 735-770, October.
    13. Duffy, David & Mc Inerney, Niall & McQuinn, Kieran, 2015. "Macroprudential Policy in a Recovering Market: Too Much too Soon?," Papers WP500, Economic and Social Research Institute (ESRI).
    14. McQuinn, Kieran & O’Toole, Conor & Slaymaker, Rachel, 2021. "Credit access, macroprudential rules and policy interventions: Lessons for potential first time buyers," Journal of Policy Modeling, Elsevier, vol. 43(5), pages 944-963.
    15. 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.
    16. Ms. Longmei Zhang & Ms. Edda Zoli, 2014. "Leaning Against the Wind: Macroprudential Policy in Asia," IMF Working Papers 2014/022, International Monetary Fund.
    17. Gerlach-Kristen, Petra & Mc Inerney, Niall, 2014. "The Role of Credit in the Housing Market," Papers WP495, Economic and Social Research Institute (ESRI).
    18. Jung, Hosung & Lee, Jieun, 2017. "The effects of macroprudential policies on house prices: Evidence from an event study using Korean real transaction data," Journal of Financial Stability, Elsevier, vol. 31(C), pages 167-185.
    19. de Araujo, Douglas Kiarelly Godoy & Barroso, Joao Barata Ribeiro Blanco & Gonzalez, Rodrigo Barbone, 2020. "Loan-to-value policy and housing finance: Effects on constrained borrowers," Journal of Financial Intermediation, Elsevier, vol. 42(C).
    20. Ms. Juliana Dutra Araujo & Manasa Patnam & Ms. Adina Popescu & Mr. Fabian Valencia & Weijia Yao, 2020. "Effects of Macroprudential Policy: Evidence from Over 6,000 Estimates," IMF Working Papers 2020/067, International Monetary Fund.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbi:ecolet:14/el/14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Fiona Farrelly (email available below). General contact details of provider: https://edirc.repec.org/data/cbigvie.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.