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Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the United Kingdom

Peydró, J-L., Rodriguez Tous, F. ORCID: 0000-0001-8394-2770, Tripathy, J. & Uluc, A. (2023). Macroprudential Policy, Mortgage Cycles and Distributional Effects: Evidence from the United Kingdom. The Review of Financial Studies, 37(3), pp. 727-760. doi: 10.1093/rfs/hhad070


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 an open access article distributed under the terms of the Creative Commons CC BY license, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Publisher Keywords: macroprudential policy; mortgages; credit cycles; inequality; house prices
Subjects: H Social Sciences > HG Finance
Departments: Bayes Business School > Finance
SWORD Depositor:
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