City Research Online

Abstract

We analyse the distributional effects of macroprudential policy on mortgage cycles by exploiting the UK mortgage-register and a 2014’s 15%-limit imposed on lenders’ high loan-to-income (LTI) mortgages. Constrained lenders issue fewer and more expensive high-LTI mortgages, with stronger effects on low-income borrowers. Unconstrained lenders strongly substitute high-LTI loans in local-areas with higher constrained-lender presence, but not high-LTI loans to low-income borrowers—consistent with adverse selection problems— implying lower overall credit to low-income borrowers. Consistently, policy-affected areas experience lower house-price growth post-regulation and, following the Brexit referendum (negative aggregate shock), better house-price growth and lower mortgage defaults for low-income borrowers.

Publication Type:	Article
Additional Information:	This is a pre-copyedited, author-produced version of an article accepted for publication in The Review of Financial Studies following peer review. The version of record will be available online at: https://academic.oup.com/rfs
Publisher Keywords:	macroprudential policy; mortgages; credit cycles; inequality; house prices
Subjects:	H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance

Export

Downloads