Author(s): Alan Brener
Date published: Mar 2020
SUERF Policy Note, Issue No 136
by Alan Brener, University College London
JEL-codes: G01, G21, G28, H11, K23, R51, R52.
Keywords: Macroprudential, financial services, regulation, housing policy, financial instability, mortgages, qualified mortgage, political legitimacy, conduct of business regulation.
This note briefly addresses the relationship between housing policy, credit and financial instability in light of the recent global financial crisis, and proposes both short and long-term solutions. Although it is not known where the next crisis will come from, history suggests that it will have credit and property at its source. Macroprudential policy is a rapidly growing subject for both legal and economics study. Thus, it is important that jurisdictions with high levels of personal debt and mortgage lending look broadly at what should be done in terms of policies, institutions and tools to make the housing market and mortgage lenders more resilient against a future crisis. Central are questions relating to the quantitative macroprudential measures, such as loan-to-value (LTV) and debt-to-income (DTI) restrictions, and whether these can be used to any significant extent in western democracies and, if employed, whether they are likely to be effective. In particular, there are questions over the political legitimacy of their use and the potential consequences for the institutions, such as central banks, promulgating such policies. There are a number of workable proposals which revolve around how best to control the provision of mortgage credit which fuels asset price inflation and the supply of housing with both socio-economic and financial stability implications.
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