Inefficient regulation: Mortgages versus total credit

A. Karapetyan; Jens Kværner; Maximilian Rohrer

doi:10.1093/rof/rfad023

Inefficient regulation: Mortgages versus total credit

A. Karapetyan, Jens Kværner, Maximilian Rohrer

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Abstract

We estimate the willingness-to-pay to bypass a loan-to-value (LTV) cap. Our identification relies on exogenous variation in debt exempt from the LTV regulation that can only be used as a substitute for a personal mortgage. Our baseline estimate reveals that homebuyers pay 7.3 Swedish Kroner (SEK) to avoid 1 SEK of equity down payment. The supply of debt not part of the LTV calculation increased by approximately 50% within 2 years after the LTV regulation. Financially weaker households drive the results.

Original language	English
Pages (from-to)	311-351
Number of pages	41
Journal	Review of Finance
Volume	28
Issue number	1
DOIs	https://doi.org/10.1093/rof/rfad023
Publication status	Published - Jan 2024

Keywords

loan-to-value
macro-prudential regulation
mortgages
regulatory arbitrage

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10.1093/rof/rfad023

rfad023Final published version, 731 KBLicence: Taverne

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title = "Inefficient regulation: Mortgages versus total credit",

abstract = "We estimate the willingness-to-pay to bypass a loan-to-value (LTV) cap. Our identification relies on exogenous variation in debt exempt from the LTV regulation that can only be used as a substitute for a personal mortgage. Our baseline estimate reveals that homebuyers pay 7.3 Swedish Kroner (SEK) to avoid 1 SEK of equity down payment. The supply of debt not part of the LTV calculation increased by approximately 50% within 2 years after the LTV regulation. Financially weaker households drive the results.",

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AU - Rohrer, Maximilian

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N2 - We estimate the willingness-to-pay to bypass a loan-to-value (LTV) cap. Our identification relies on exogenous variation in debt exempt from the LTV regulation that can only be used as a substitute for a personal mortgage. Our baseline estimate reveals that homebuyers pay 7.3 Swedish Kroner (SEK) to avoid 1 SEK of equity down payment. The supply of debt not part of the LTV calculation increased by approximately 50% within 2 years after the LTV regulation. Financially weaker households drive the results.

AB - We estimate the willingness-to-pay to bypass a loan-to-value (LTV) cap. Our identification relies on exogenous variation in debt exempt from the LTV regulation that can only be used as a substitute for a personal mortgage. Our baseline estimate reveals that homebuyers pay 7.3 Swedish Kroner (SEK) to avoid 1 SEK of equity down payment. The supply of debt not part of the LTV calculation increased by approximately 50% within 2 years after the LTV regulation. Financially weaker households drive the results.

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KW - regulatory arbitrage

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Inefficient regulation: Mortgages versus total credit

Abstract

Keywords

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