The Real Consequences of LTV Limits on Housing Choices
65 Pages Posted: 7 Mar 2017 Last revised: 4 Nov 2020
Date Written: May 24, 2019
This paper provides novel evidence on the effects of LTV limits on housing choices. I exploit the 2010 and 2012 introduction of LTV limits in Israel using a detailed loan-level dataset. I find that the LTV limits, which were designed to lower borrowers' risk, resulted in borrowers choosing more affordable housing units, farther from the central business district, and in lower socioeconomic neighborhoods. In addition, those LTV limits increased interest rates and reduced loan amounts. My evidence suggests that macroprudential policies, which focus on the stability of the financial system, thus have micro-implications on location choices, commuting costs, and moving to less-advantaged areas.
Keywords: Macroprudential policy, LTV, mortgage, housing market, household finance
JEL Classification: E43, E58, E61, G21, G28, R28, R51
Suggested Citation: Suggested Citation