Macroprudential Policy and Housing Market Expectations

Using a large-scale online survey experiment, we study the effects of changes in three borrower-based macroprudential policy tools, residential loan-to-value (LTV), debt-to-income, and buy-to-let LTV ratio, on British consumers’ housing market expectations. A policy loosening generally leads to higher house price expectations, more positive sentiment about housing transactions and stock market investments, improved affordability evaluations, and a reduction in planned non-housing spending (especially for homebuyers and the young), with loosening the residential LTV ratio having the biggest impact. Perceived housing affordability deterioration is associated with perceived accelerating house price growth and increased likelihood of a financial crisis