Household Behavior under Macroprudential Borrower-Based Measures

This paper develops a life cycle model to study household choice under macroprudential borrower-based measures (BBMs). The model is extended to multiple heterogeneous households, allowing to assess both aggregate and distributional effects of BBMs on mortgage and housing demand. The framework is applied to Lithuanian and Slovak distributional data to quantify the impact of various BBM configurations. We find that the presence of binding BBMs can usefully dampen mortgage and house price growth. However, tight regulation may also redirect demand towards lower-valued housing, while pushing households into the rental market. In particular, loan-to-value (LTV) limits are most constraining for households with little or no initial wealth. This highlights the distributional consequences of BBMs and the importance of designing regulation to account for borrower characteristics.