Loan-to-Value Limits and House Prices

37 Pages Posted: 30 Sep 2019

See all articles by Kasper Meisner Nielsen

Kasper Meisner Nielsen

Copenhagen Business School - Department of Finance; Hong Kong University of Science & Technology (HKUST) - Department of Finance

Date Written: September 2019

Abstract

This study evaluates the effect of loan-to-value (LTV) limits on house prices. The identification strategy exploits variation in LTV limits induced by Hong Kong Monetary Authorities’ decision to introduce differentiated LTV limits anchored on the value of the property, which allows us to observe the counterfactual house price development. We estimate that a one-percentage-point decrease in LTV limits reduces the house price growth by 0.8 percentage points. Overall, our results document that macro prudential policies, which regulate access to financing, are an effective policy tool to control house price growth.

Keywords: macro-prudential policy, loan-to-value limits, LTV, house price growth

JEL Classification: E44, E58, G21, G28

Suggested Citation

Nielsen, Kasper Meisner, Loan-to-Value Limits and House Prices (September 2019). Available at SSRN: https://ssrn.com/abstract=3456488 or http://dx.doi.org/10.2139/ssrn.3456488

Kasper Meisner Nielsen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

A4.17 Solbjerg Plads 3
Copenhagen, Frederiksberg 2000
Denmark

Hong Kong University of Science & Technology (HKUST) - Department of Finance ( email )

Clear Water Bay, Kowloon
Hong Kong

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