Macroprudential Policy, Mortgage Cycles, and Distributional Effects: Evidence from the United Kingdom

Open Access       

Authors: José-Luis Peydró, Francesc R Tous, Jagdish Tripathy and Arzu Uluc

The Review of Financial Studies, Vol. 37, No 3, 727–760, March, 2024

We analyze the distributional effects of macroprudential policy on mortgage cycles by exploiting the U.K. mortgage register and a 2014 15% limit imposed on lenders’ high loan-to-income (LTI) mortgages. Constrained lenders issue fewer and more expensive high-LTI mortgages, with stronger effects on low-income borrowers. Unconstrained lenders strongly substitute high-LTI loans in local areas with higher constrained lender presence, but not high-LTI loans to low-income borrowers—consistent with adverse selection problems—implying lower overall credit to low-income borrowers. Consistently, policy-affected areas experience lower house price growth postregulation and, following the Brexit referendum (negative aggregate shock), better house price growth and lower mortgage defaults for low-income borrowers.

This paper originally appeared as Barcelona School of Economics Working Paper 1183