Advisory Center for Affordable Settlements & Housing

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Document Type General
Publish Date 11/06/2014
Author Updating by ACASH is in process
Published By Financial Stability Report
Edited By Saba Bilquis
Uncategorized

International Experience with Macroprudential Mortgage Product Instruments

In recent years there has been increasing use of macroprudential policies to reduce risks associated with the provision of mortgage debt. Instruments used have included various limits on loan to value (LTV) ratios, loan or debt to income (L/DTI) ratios, debt-servicing ratios (DSRs) and loan tenors.(1)A range of national authorities have deployed such policies: an IMF survey of 42 countries found that more than one third had implemented product tools on mortgages, including two thirds of EU countries.(2)Table 1sets out some examples of the use of such instruments. The IMF survey suggests that macroprudential mortgage product instruments have most frequently been used to tackle risks from households over-indebtedness. These risks include direct losses on mortgage lending in the event of a shock but also losses on lending more broadly as a result of reduced consumption and economic activity. Some authorities have used product instruments to mitigate the risks associated with an easing of lending standards during booms, or to reduce speculative activity and overheating in particular market segments. A few countries have noted the potential for these policies to reduce the sensitivity of bank loan losses to changes in house prices. The choice of, and in some cases combination of, instruments deployed has varied across countries, depending on the source of risk that the authorities have been seeking to control. Several countries, particularly in South East Asia, have placed limits on the total exposure individual banks may have to the property sector. New Zealand recently introduced a speed limit’ policy, to restrict the proportion of new mortgage loans that banks can make at high LTV ratios.

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