DP13503 Macroprudential Policy and Household Leverage: Evidence from Administrative Household-Level Data

Author(s): Marc Gabarro, Rustom M Irani, José Luis Peydró, Sjoerd van Bekkum
Publication Date: February 2019
Keyword(s): financial regulation, household finance, household leverage, Liquidity vs. Solvency, macroprudential policy, Residential Mortgages
JEL(s): D14, D31, E21, E58, G21, G28
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13503

We examine the effects of macroprudential policy for household leverage, liquidity, and default. For identification, we exploit the August 2011 introduction of a limit on mortgage loan-to-value ratios in the Netherlands, in conjunction with population tax-return and property ownership data linked to the universe of housing transactions. First-time homebuyers most affected by the policy shock substantially reduce household leverage and mortgage debt servicing costs by taking on less mortgage debt. Rather than buying more affordable homes or taking non-regulated loans, households consume greater liquidity in the year of home purchase to plug the funding gap. Improvements in household solvency are accompanied by a lower mortgage default rate; however, along the extensive margin, fewer households transition from renting into ownership. These effects are stronger among poorer households and those with fewer liquid assets.