Spatially Targeted LTV Policies and Collateral Values

Abstract

Governments regulate household leverage at a national level, even when credit and housing market conditions vary across locations. We document that loan-to-value limits targeting specific neighborhoods can curb local house price growth. We combine administrative data from Taiwan covering the universe of mortgages, personal income tax returns, geocoded housing transactions, and bank balance sheets. Applying matched difference-in-differences and border difference-in-discontinuity designs, we find leverage limits are effective at persistently reducing local house prices in expensive, high-income neighborhoods, without reducing delinquency or inducing mortgage credit rationing. Consumers avoid place-based mortgage restrictions by obtaining inflated appraisals and moving to less regulated areas.

Keywords: loan-to-value ratio, place-based mortgage restrictions, macroprudential policy, intermediation, collateral misreporting, house prices, border discontinuity, location sorting

JEL Classification: E61, G21, G28, R21, R31, R38