Borrower-Based Measures, House Prices and Household Debt

This paper investigates the direct effect on household debt of macroprudential borrowerbased measures, namely Loan to Income (LTI) and Loan to Value (LTV) limits. The analysis focuses on the Netherlands, in a period characterized by growing vulnerabilities from the housing market and changes in the macroprudential policy. Results show that a LTI limit targeting debt repayment capacity is only binding at the left tail of the income distribution. Instead, a progressive tightening of the LTV limit that did not impose any downpayment constraint doubled the share of LTV-constrained borrowers. Results also show the role of increasing house prices as additional binding constraints for household borrowing choices.

Keywords: Borrower based measures, macroprudential policy, LTV, LTI, DSTI.
JEL codes D14, G21

Working paper no. 738