The household effects of mortgage regulation

In the new CAMP Working Paper 07/2021, Aastveit, Juelsrud and Getz Wold evaluate the impact of mortgage regulation on child and parent household balance sheets, highlighting important trade-offs in terms of financial vulnerability. Using Norwegian tax data, they show that loan-to-value caps reduce house purchase probabilities, debt and interest expenses – thereby improving household solvency. Moreover, parents of first-time buyers also reduce their debt uptake, suggesting that concerns about regulatory arbitrage are unwarranted. However, the higher downpayment requirement also leads to a persistent deterioration of household liquidity. They show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s