LTV and DTI Limits - Going Granular

42 Pages Posted: 31 Aug 2015

See all articles by Luis I Jácome

Luis I Jácome

International Monetary Fund (IMF)

Srobona Mitra

International Monetary Fund (IMF)

Date Written: July 2015

Abstract

There is increasing interest in loan-to-value (LTV) and debt-service-to-income (DTI) limits as many countries face a new round of rising house prices. Yet, very little is known on how these regulatory instruments work in practice. This paper contributes to fill this gap by looking closely at their use and effectiveness in six economies — Brazil, Hong Kong SAR, Korea, Malaysia, Poland, and Romania. Insights include: rapid growth in high-LTV loans with long maturities or in the number of borrowers with multiple mortgages can be signs of build up in systemic risk; monitoring nonperforming loans by loan characteristics can help in calibrating changes in the LTV and DTI limits; as leakages are almost inevitable, countries strive to address them at an early stage; and, in most cases, LTVs and DTIs were effective in reducing loan-growth and improving debt-servicing performances of borrowers, but not always in curbing house price growth.

Keywords: financial stability, macroprudential policy, loan-to-value ratios, debt-service-to income ratios, house price growth, credit growth.

JEL Classification: E44, E58, G21, G28

Suggested Citation

Jácome, Luis I and Mitra, Srobona, LTV and DTI Limits - Going Granular (July 2015). IMF Working Paper No. 15/154. Available at SSRN: https://ssrn.com/abstract=2653607

Luis I Jácome (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Srobona Mitra

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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