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

Author:

Peydró José-Luis1,Rodriguez-Tous Francesc2,Tripathy Jagdish3,Uluc Arzu3

Affiliation:

1. Imperial College London, CEPR , UK , and UPF-ICREA-BSE, Spain

2. Bayes Business School , UK

3. The Bank of England , UK

Abstract

Abstract We analyze the distributional effects of macroprudential policy on mortgage cycles by exploiting the U.K. mortgage register and a 2014 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 postregulation and, following the Brexit referendum (negative aggregate shock), better house price growth and lower mortgage defaults for low-income borrowers. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online

Publisher

Oxford University Press (OUP)

Subject

Economics and Econometrics,Finance,Accounting

Reference41 articles.

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