Adjusting to Macroprudential Policies: Loan-to-Value Limits and Housing Choice.

This study analyzes the impact of loan-to-value (LTV) limits, a type of macroprudential policy (MPP), on housing and credit market choices in Israel following the Bank of Israel’s 2010 and 2012 LTV regulations. It finds that these LTV limits led borrowers to purchase more affordable, smaller homes located farther from Tel Aviv’s central business district and in lower socioeconomic neighborhoods, while also increasing mortgage interest rates and reducing loan amounts. The stricter 2012 LTV limits had a stronger effect, particularly on investors, who showed greater flexibility in relocating but faced higher borrowing costs and longer loan maturities, partly due to increased reliance on unregulated consumer credit. The study highlights that while MPPs aim to enhance financial stability, they have significant micro-level consequences on housing location, commuting costs, and neighborhood socioeconomic composition.