Micro-assessment of macroprudential borrower-based measures

Abstract

This paper presents an assessment of macroprudential borrower-based measures (BBMs). Despite such measures being in place, several countries saw renewed increases in house prices and indebtedness when rates were low after the Global Financial Crisis. Against this background, we develop a novel modeling framework that allows to explore the link between multiple BBM limits and lifetime credit risk parameters. While our analysis is based on Lithuania’s household loan data, we draw three general lessons that have broader implications. First, we find that BBMs significantly reduce individual mortgage credit risk, thereby providing aggregate resilience. Second, our model indicates that the stance of an income-based measure, specifically the DSTI limit, may have been loose during the low-rate era, highlighting a potential weakness of the tool. Third, we provide empirical evidence supporting more stringent regulation of investor loans and propose a calibration approach.