The Real Effects of Borrower-Based Macroprudential Policy: Evidence from Administrative Household-Level Data

We analyze the effects of borrower-based macroprudential policy at the household level. We exploit administrative Dutch tax and housing records, and the introduction of a mortgage loan-to-value (LTV) limit. The regulation reduces homeownership. Among (regulation) affected-households, mortgage leverage falls with bunching at the LTV limit. While affected-households reduce total leverage and interest expenses, they also reduce cash balances to satisfy the limit, generating a solvency-liquidity tradeoff. Moreover, affected-households experience less financial distress, and better liquidity management and smoother consumption following income loss. Finally, tracking individual households' long-term wealth accumulation, the LTV regulation reduces wealth's volatility, notably, by improving left-tail returns.