Macroprudential Policy, Household Credit and House Prices

Working paper 842
Working Papers
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Gepubliceerd: 02 oktober 2025

Door: Francesco Caloia Madi Mangan Mauro Mastrogiacomo

This paper investigates how changes in credit availability influence house prices. We show that increases in household credit triggered by a relaxation of lending standards lead to higher transaction prices, higher shares and amounts of overbidding transactions and lower property sale times in the housing market. The impact on prices increases throughout the housing boom due to a higher take-up of credit by households. Also, it is stronger in locations with tighter housing supply and lower affordability, among liquidity­ constrained but credit-unconstrained buyers, as well as for more expensive properties. The findings support the credit-driven household demand hypothesis and highlight that mac­ roprudential policy contains systemic risk not only by reducing household leverage, but also by curbing house price growth over the cycle.

Keywords: House prices; Household debt; Macroprudential policy; credit;
JEL codes G21; G28; G51

Working paper no. 842

842 - Macroprudential Policy, Household Credit and House Prices

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Research highlights: 

  • A relaxation of lending standards leads to increases in household credit and, in turn, to higher transaction prices, more overbidding, and shorter sale times in the housing market.
  • Macroprudential policies such as LTI and LTV limits mitigate systemic risk by curbing household leverage and price growth over the cycle.
  • The price impact of higher household credit is amplified in areas with tight housing supply and low affordability, among liquidity-constrained but credit-unconstrained buyers, for more expensive properties, and in the late phases of the financial cycle.
  • Given these heterogeneous responses, further tightening the borrowing limits could deteriorate housing market accessibility and have pro-cyclical effects, especially if the limits are tightened late in the cycle.

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