Mortgage Constraints
Household Responses, Market Adjustment and Financial Stability
Mortgage constraints are widely used to reduce household leverage, but lower credit volumes alone say little about who bears the cost or whether financial vulnerability falls. We decompose the effect of a mortgage constraint tightening into three components: the direct effect on households, the equilibrium incidence through house prices, rents and credit supply and, finally, the corrective benefit. We use this framework to synthesize household-level, housing-market, lender, cross-country and credit-crisis evidence. The direct effect falls on young and low-wealth households, largely through fewer mortgage originations. Aggregate credit responses are several times larger than mechanically aggregated micro responses, consistent with general equilibrium amplification, although settings and outcomes differ across studies. Quantitative evidence on the corrective benefit is scarce, and few of the 154 tightening episodes we examine occur when credit and house-price growth is high.
Keywords: Mortgage constraints, macroprudential policy, household leverage, general equilibrium amplification, financial crises
JEL codes: G51, G21, G28, R31, E44, E58, G01.
We gratefully acknowledge research support from the Leibniz Institute for Financial Research SAFE. Claes Bäckman gratefully acknowledges funding from the European Union through the Marie Skłodowska-Curie Individual Fellowship YoHo, project 101151984. Views and opinions expressed are those of the authors only and do not necessarily reflect those of the European Union or the European Research Executive Agency (REA). Neither the European Union nor the granting authority can be held responsible for them.