Mortgage Regulation and Financial Vulnerability at the Household Level

47 Pages Posted: 1 Jul 2020

Date Written: June 29, 2020


We evaluate the impact of mortgage regulation on credit volumes, household balance sheets and the reaction to adverse economic shocks. Using a comprehensive dataset of all housing transactions in Norway matched with buyers' balance sheet information from official tax records, we identify causal effects of mortgage loan-to-value (LTV) limits. Our results show that LTV-requirements have substantial effects on credit volumes, especially on the extensive margin. As a result, such requirements contribute to dampening aggregate credit growth. We find that affected households lower their debt uptake and face lower interest expenses, thereby reducing their vulnerability to adverse shocks. However, affected households also deplete liquid assets when purchasing a home, in order to meet the new requirement. This negative effect on liquid savings persists in the years following the house purchase, suggesting that the impact on financial vulnerability at the household level is in fact ambiguous. We illustrate this further by documenting that households affected by the regulation are more likely to sell their home when becoming unemployed compared to non-affected households.

Keywords: Household leverage, Financial regulation, Macroprudential policy, Mortgage markets

JEL Classification: E21, E58, G21, G28, G51

Suggested Citation

Aastveit, Knut Are and Juelsrud, Ragnar and Getz Wold, Ella, Mortgage Regulation and Financial Vulnerability at the Household Level (June 29, 2020). Norges Bank Working Paper 6/20, Available at SSRN: or

Knut Are Aastveit (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107

Ragnar Juelsrud

Norges Bank ( email )

Bankplassen 2
Oslo, 0151


Ella Getz Wold

Brown University ( email )

Box 1860
Providence, RI 02912
United States

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