We study real estate lending responses to tighter macroprudential policy (MPP) in the form of lower required loan-to-value (LTV) ratios. Contract details of 2.4 million mortgage loans originated between 2008 and 2020 reveal significantly fewer new loan issuances in response to contractionary MPP, commensurate with an average reduction in aggregate lending of 21 percent. Loan-level analyses reveal, however, that banks comply with lower LTVs by systematically more benevolent valuations of residential real estate pledged as collateral instead of reducing loan size. Exploiting earthquakes as plausible exogenous shocks to property values corroborates these risk-shifting patterns by banks in the form of inflated property valuations after LTV shocks.

In this paper, we use the panel of the first two waves of the Household Finance and Consumption Survey by the European Central Bank to study housing demand of European households and evaluate potential housing market regulations in the post-crisis era. We provide a comprehensive account of the housing decisions of European households between 2010 and 2014, and structurally estimate the housing preference of a simple life-cycle housing choice model. We then evaluate the effect of a tighter LTV/LTI regulation via counter-factual simulations. We find that those regulations limit homeownership and wealth accumulation, reduces housing consumption but may be welfare improving for the young households.