Effect of loan-to-collateral limits on household leverage and housing choices

Date of project : 2021 - 2023

Over the past ten years, many countries have introduced macroprudential policies targeting housing markets and directly regulating household borrowing. The effects of these policies on household borrowing and housing choices, and their incidence on different socio-economic groups are not well understood. The Finnish Financial Supervisory Authority introduced a loan-to-collateral (LTC) limit for housing debt in 2016.


We analyze the effect of this policy change on household leverage and housing choices using population wide micro-data and data on transactions of apartments. We describe loan-to-value distributions of apartment buyers before and after the reform and estimate excess mass (bunching) at the LTC limits. We analyze changes in socio-economic attributes and housing characteristics in the vicinity of the limits to identify socio-economic groups for which the limits were more often binding and to study the effects of housing choices.

The research is funded by: OP Group Research Foundation

Partner: Bank of Finland

Responsible researcher: Teemu Lyytikäinen, [email protected], +358 295 519 431

Essi EerolaSander RamboerTeemu Lyytikäinen Housing policyLocal public finance and provision of public servicesTeemu Lyytikäinen