I was looking for international examples of the effects of the implementation of LTV and LTI/DTI (debt-to-income) ratios for mortgage lending.
The IMF conducted this detailed study into the effects of implementation in South Korea.
The conclusions were:
and
The IMF conducted this detailed study into the effects of implementation in South Korea.
The conclusions were:
- Transaction activity drops significantly in the three-month period following the tightening of LTV/DTI regulations.
- Price appreciation slows down a bit later, in a six-month window rather than the three-month window.
- Price dynamics appear to be reined in more after LTV tightening rather than DTI tightening.
- Expected house price increases in the future become lower after policy intervention.
- Plans to purchase of a home are more likely to be postponed by those who already own a property, i.e., potential speculators, but not by those who do not own a property, i.e., potential first-time home buyers.
- Tighter limits on loan eligibility criteria, especially on LTV, curb expectations and speculative incentives.
and
Policy implications of our analysis are encouraging. In housing markets, expectations are key as they often facilitate the settling in of bubble dynamics. If, as suggested by the evidence presented here, limits on LTV curb expectations and discourage potential speculators, they can be effective tools to tame real estate booms and contain the associated risks.