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Do Loan-to-Value and Debt-to-Income Limits Work? Evidence from Korea

SSRN Electronic Journal
2011
  • 20
    Citations
  • 1,309
    Usage
  • 37
    Captures
  • 0
    Mentions
  • 0
    Social Media
Metric Options:   Counts1 Year3 Year

Metrics Details

  • Citations
    20
    • Citation Indexes
      19
    • Policy Citations
      1
      • Policy Citation
        1
  • Usage
    1,309
    • Abstract Views
      1,183
    • Downloads
      126
  • Captures
    37
  • Ratings
    • Download Rank
      452,091

Article Description

With another real estate boom-bust cycle bringing woes to the financial sector and economic activity, a quest to design a better policy toolkit to deal with these booms and busts has begun. Macroprudential measures are often advocated as part of such a toolkit and recently have been adopted in a number of countries. Yet, we know very little about the impact of actively- imposed maximum limits on loan-to-value and debt-to-income ratios. This paper takes a step to fill this gap by analyzing the Korean experience with these tools. Using regional data from 2002 to 2010 and survey information on households from 2001 to 2009, we find that such limits are associated with a decline in house price appreciation rates and reduced transaction activity. Furthermore, there is evidence that the limits alter expectations, which play a key role in bubble dynamics. The association with mortgage loan originations and household leverage, however, appears to be weaker, perhaps reflecting the slow-changing nature of balance sheets.

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