Pockets of Risk in European Housing Markets: Then and Now

The Discussion Paper series is intended to make the results of the current economic research within the Reserve Bank of Australia (RBA) available to other economists. Its aim is to present preliminary results of research so as to encourage discussion and comment. Views expressed in this paper are those of the authors and not necessarily those of the RBA. However, the RBA owns the copyright in this paper.

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How Risky Is Australian Household Debt?

Kearns¹,

Major²,

Norman

2021

Australian Economic Review

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Beyond the LTV Ratio: Lending Standards, Regulatory Arbitrage, and Mortgage Default

Galán¹,

Lamas²

2023

J of Money Credit Banking

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Booming house prices are historically correlated with loose lending standards. Nonetheless, in Spain the loan‐to‐value (LTV) ratio failed to capture imbalances during the last housing boom. Using loan‐level data from millions of mortgages we show that inflated collateral valuations, used by banks as a mechanism to circumvent regulation, distorted the informative value of LTV, and masked the accumulation of risk. We identify that regulation relying upon a single measure is more prone to suffer from regulatory arbitrage, and that the optimal policy mix varies over the financial cycle. Overall, our study provides useful insights for the implementation of borrower‐based measures.

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Pockets of Risk in European Housing Markets: Then and Now

Cited by 2 publications

References 12 publications

How Risky Is Australian Household Debt?

How Risky Is Australian Household Debt?

Beyond the LTV Ratio: Lending Standards, Regulatory Arbitrage, and Mortgage Default

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