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The household effects of mortgage regulation

Author

Listed:
  • Knut Are Aastveit
  • Ragnar Enger Juelsrud
  • Ella Getz Wold
Abstract
We evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, we show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.

Suggested Citation

  • Knut Are Aastveit & Ragnar Enger Juelsrud & Ella Getz Wold, 2021. "The household effects of mortgage regulation," Working Papers No 07/2021, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    • Handle: RePEc:bny:wpaper:0103
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    File URL: https://hdl.handle.net/11250/2835776
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    References listed on IDEAS

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    Cited by:

    1. McCann, Fergal & Durante, Elena, 2022. "The effects of a macroprudential loosening: the importance of borrowers’ choices," Research Technical Papers 9/RT/22, Central Bank of Ireland.

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    Keywords

    Household leverage; Financial regulation; Macroprudential policy; Mortgage markets;
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