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Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia

Author

Listed:
  • Peter Morgan

    (Asian Development Bank Institute)

  • Paulo Jose Regis

    (Asian Development Bank Institute)

  • Nimesh Salike

    (Asian Development Bank Institute)

Abstract

Credit creation in the housing market has been a key source of systemic financial risk, and therefore is at the center of the debate on macroprudential policies. The loan-to-value (LTV) ratio is a widely used macroprudential tool aimed at moderating mortgage loan creation, and its effectiveness needs to be estimated empirically. This paper is unique in that it analyzes the effect of LTV on mortgage lending, the direct channel of influence, using a large sample of banks in 10 Asian economies. It uses estimation techniques to deal with the large presence of outliers in the data. Robust-to-outlier estimations show that economies with LTV polices have expanded residential mortgage loans by 6.7% per year, while non-LTV economies have expanded by 14.6%, which suggests LTV policies have been effective.

Suggested Citation

  • Peter Morgan & Paulo Jose Regis & Nimesh Salike, 2015. "Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia," ADBI Working Papers 528, Asian Development Bank Institute.
    • Handle: RePEc:ris:adbiwp:0528
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    Citations

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    Cited by:

    1. Peter J. Morgan & Yan Zhang, 2017. "Mortgage lending, banking crises, and financial stability in Asia and Europe," Asia Europe Journal, Springer, vol. 15(4), pages 463-482, December.
    2. Ely, Regis Augusto & Tabak, Benjamin Miranda & Teixeira, Anderson Mutter, 2019. "Heterogeneous effects of the implementation of macroprudential policies on bank risk," MPRA Paper 94546, University Library of Munich, Germany.
    3. Janko Cizel & Jon Frost & Aerdt Houben & Peter Wierts, 2019. "Effective Macroprudential Policy: Cross‐Sector Substitution from Price and Quantity Measures," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(5), pages 1209-1235, August.
    4. Peter Morgan & Yan Zhang, 2015. "ADBI WP543: Mortgage Lending and Financial Stability in Asia," ADBI Working Papers 543, Asian Development Bank Institute.
    5. Morgan, Peter J. & Regis, Paulo José & Salike, Nimesh, 2019. "LTV policy as a macroprudential tool and its effects on residential mortgage loans," Journal of Financial Intermediation, Elsevier, vol. 37(C), pages 89-103.
    6. Péter Fáykiss, Márton Nagy and Anikó Szombati, 2017. "Regionally-differentiated debt cap rules: a Hungarian perspective," BIS Papers chapters, in: Bank for International Settlements (ed.), Macroprudential policy frameworks, implementation and relationships with other policies, volume 94, pages 153-178, Bank for International Settlements.
    7. Ely, Regis A. & Tabak, Benjamin M. & Teixeira, Anderson M., 2021. "The transmission mechanisms of macroprudential policies on bank risk," Economic Modelling, Elsevier, vol. 94(C), pages 598-630.
    8. Péter Fáykiss & Alexandr Palicz & János Szakács & Márton Zsigó, 2018. "Experiences of Debt Cap Regulations in Hungarian Retail Lending," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 17(1), pages 34-61.
    9. Singh, Bhupal, 2023. "Housing prices and macroprudential policies: Evidence from microdata," Economic Systems, Elsevier, vol. 47(1).
    10. LinLin, Sun & Yawen, Zhang & Xiaojun, Xue, 2024. "The effects of macroprudential policies on house prices: Evidence from non-ordinary house purchasing policy using China real transaction data," Economic Analysis and Policy, Elsevier, vol. 84(C), pages 2086-2101.
    11. Luangaram, Pongsak & Thepmongkol, Athakrit, 2022. "Loan-to-value policy in a bubble-creation economy," Journal of Asian Economics, Elsevier, vol. 79(C).
    12. Peter J. Morgan & Yan Zhang, 2018. "Mortgage Lending And Financial Stability In Asia," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 63(01), pages 125-146, March.
    13. Simona Malovaná & Martin Hodula & Zuzana Gric & Josef Bajzík, 2025. "Borrower‐based macroprudential measures and credit growth: How biased is the existing literature?," Journal of Economic Surveys, Wiley Blackwell, vol. 39(1), pages 66-102, February.
    14. Hodula, Martin & Melecký, Martin & Pfeifer, Lukáš & Szabo, Milan, 2023. "Cooling the mortgage loan market: The effect of borrower-based limits on new mortgage lending," Journal of International Money and Finance, Elsevier, vol. 132(C).
    15. Martin Hodula & Milan Szabo & Lukas Pfeifer & Martin Melecky, 2022. "Cooling the Mortgage Loan Market: The Effect of Recommended Borrower-Based Limits on New Mortgage Lending," Working Papers 2022/3, Czech National Bank, Research and Statistics Department.

    More about this item

    Keywords

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    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • 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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