Inefficient Regulation: Mortgages versus Total Credit

59 Pages Posted: 28 May 2021 Last revised: 14 Jul 2021

See all articles by Artashes Karapetyan

Artashes Karapetyan

ESSEC Business School

Jens Kvaerner

Tilburg University

Maximilian Rohrer

NHH - Norwegian School of Economics

Date Written: July 14, 2021

Abstract

We study the impact of loan-to-value regulation on supply and demand for unregulated debt that is used for home acquisition. In our setting, part of the dwelling price is in the form of pre-existing debt exempt from the regulation. Variations in the latter prior to the LTV regulation generated exogenous variation in the regulatory requirements across buildings. We find that households, especially constrained ones, start paying more for dwellings financed with more unregulated debt. Our estimates reveal a willingness to pay for alternative home financing of about 250 percent above the prevailing mortgage rate. In the longer run, the supply of unregulated debt increases by almost 50 percent. We corroborate our findings by aggregating evidence from 13 countries.

Keywords: Macroprudential regulation, Loan-to-value (LTV) caps, household financing decisions, house prices

JEL Classification: G18, G28, H31

Suggested Citation

Karapetyan, Artashes and Kvaerner, Jens and Rohrer, Maximilian, Inefficient Regulation: Mortgages versus Total Credit (July 14, 2021). Available at SSRN: https://ssrn.com/abstract=3854860 or http://dx.doi.org/10.2139/ssrn.3854860

Artashes Karapetyan (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

Jens Kvaerner

Tilburg University ( email )

Warandelaan 2
Tilburg, Noord-Brabant 4818HK
Netherlands
+4740242704 (Phone)

HOME PAGE: http://https://sites.google.com/site/jenskvaerner/

Maximilian Rohrer

NHH - Norwegian School of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
89
Abstract Views
319
rank
346,264
PlumX Metrics