In the context of high macroeconomic and financial volatility, it is appropriate to implement stricter macroprudential borrower-based measures, such as loan-to-value (LTV) ratios. Lower (stricter) LTV ratios can lead to decreased inequality in consumption. However, the effects on wealth inequality are mixed. On one hand, lower LTV supports decrease in non-performing loans, which can have positive consequences on wealth inequality. On the other hand, it reduces access to finance that might have negative consequences on wealth inequality. In the absence of negative unexpected economic shocks, loosening (higher) LTV ratios may lead to an increase in home ownership, which can have positive effects on reducing wealth inequality. In terms of credit risk, our results underline that a tighter LTV policy is associated with lower default rates. Moreover, our analysis based on a novel approach suggests that potential effects on inequality could be also taken into account within calibration of the LTV policy.
JEL codes: C53, E27, E32, E44.