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Mortgage servicing burdens and LTI caps

Author

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  • Kelly, Jane

    (Central Bank of Ireland)

  • Mazza, Elena

    (Central Bank of Ireland)

Abstract

The Central Bank of Ireland regulates Loan to Income (LTI) ratios. The aim is to strengthen both bank and borrower resilience and to reduce the likelihood and impact of a credit-house price spiral emerging. However, the Central Bank also monitors many other measures of household vulnerability, including mortgage service to income ratios (MSTI). Using Irish micro data, we illustrate that mortgage service burdens vary for similar LTI levels due to underlying differences in origination interest rates and mortgage terms.We highlight the variation in origination servicing burdens through the interest rate cycle even within narrow LTI bands.We also show that servicing burdens on loans above the LTI limits are generally more sensitive to interest rate shocks than those below the limits.

Suggested Citation

  • Kelly, Jane & Mazza, Elena, 2019. "Mortgage servicing burdens and LTI caps," Financial Stability Notes 13/FS/19, Central Bank of Ireland.
    • Handle: RePEc:cbi:fsnote:13/fs/19
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    References listed on IDEAS

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    Cited by:

    1. Kelly, Jane & Mazza, Elena, 2019. "Mortgage Repayment Affordability across the Income Distribution," Financial Stability Notes 15/FS/19, Central Bank of Ireland.

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