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The household effects of mortgage regulation

Aastveit, Knut Are; Juelsrud, Ragnar Enger; Wold, Ella Getz
Working paper
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CAMP_WP_7_2021.pdf (848.1Kb)
URI
https://hdl.handle.net/11250/2835776
Date
2021-12
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  • Centre for Applied Macro- and Petroleum economics (CAMP) [104]
Abstract
We 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, we 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. We show that this reduction in liquid buffers coincides with larger house sale propensities given unemployment, as households become more vulnerable to adverse income shocks.
Publisher
BI Norwegian Business School
Series
CAMP Working Paper Series;07/2021

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