The effect of introducing a Loan-to-Value limit on home ownership

We analyze the impact of the introduction of a Loan-to-Value (LTV) limit in The Netherlands on the probability for first time buyers to become homeowner using a duration model. Our research design is underpinned by a theoretical model that shows that a lower LTV limit results in suspending or renouncing home ownership, but only for liquidity constrained individuals. We use this finding to construct a treatment and control group with parents' financial wealth as a proxy for being liquidity constrained. We disentangle the effects of the LTV limit on the timing of the transition to first time home ownership from other market developments. We show that the effect of the LTV limit on this transition is approximately 6%.

Keywords: home ownership, down payment, liquidity constraints, inter-generational transfers, survival model
JEL codes G51, R21

Working paper no. 741