## 2. Macroprudential Policies and House Prices in Europe: An Overview of Recent Experiences

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### Types of Macroprudential Measures
- Loan-to-value (LTV) caps:
  - Since initial adoption, LTV caps tightened in: Czech Republic, Netherlands, Norway, Poland, the Slovak Republic.
- Debt-to-income (DTI)/loan-to-income (LTI) and debt service-to-income (DSTI) caps:
  - DSTI caps vary by borrower income level (Czech Republic, Hungary, Poland, Portugal, the Slovak Republic, Slovenia), currency of denomination (Cyprus and Hungary), LTV level (Lithuania), or interest fixing period/debt service frequency (Hungary and Slovak Republic).
  - Romania’s DSTI caps are determined by scenario analysis that considers currency, interest rate, and income risks.
  - In the Czech Republic, Ireland, Norway, the Slovak Republic, the DTI/LTI caps were introduced as a complement to LTV caps.
  - In the United Kingdom, only LTI caps have been implemented.
- Capital requirements:
  - Half of the EU countries have adopted the full Basel III capital conservation buffer (CB) of 2.5 percent of risk-weighted assets; others are phasing it in gradually.
  - All countries have introduced the countercyclical capital buffer (CCB), but only the Czech Republic, France, Iceland, Norway, the Slovak Republic, Sweden, Switzerland, and the United Kingdom have nonzero buffers.
  - A total of 13 countries have adopted the systemic risk buffer (SRB).
  - Poland has imposed a risk weight of 150 percent on foreign-exchange-denominated household mortgages.
- Sectoral risk-weight floors applied on commercial real estate (Croatia, Finland, Ireland, Norway, Romania, Sweden) and residential mortgages (Belgium, Croatia, Norway, Slovenia, Sweden).
- Other instruments mentioned: leverage ratio, liquidity coverage ratio, loan-to-deposit limits, maturity and amortisation restrictions, loss-given-default measures, stress testing, pillar II requirements.

### Adoption and Coverage (as of July 2018)
- Broad adoption across jurisdictions:
  - Use of LTV and DTI measures across many countries (count and timing series shown).
  - Use of loan amortization and maturity requirements in multiple countries (count and timing series shown).
  - Adoption of capital buffers: countries with full implementation of capital conservation buffer of 2.5 percent shown; others phasing in.
  - Finland adopted SRB in June 2017 but it will not be activated until July 2019.
- Notable numeric references:
  - CCB nonzero buffers observed in: Czech Republic, France, Iceland, Norway, the Slovak Republic, Sweden, Switzerland, the United Kingdom.
  - SRB adopted by 13 countries.

### Impact on Riskier Mortgages — Country Findings
- General finding:
  - After LTV limits were imposed, the share of mortgage loans with LTVs exceeding those limits decreased in Czech Republic, Israel, Norway, Slovak Republic, Sweden, and Switzerland.
- Czech Republic:
  - Lender-based measures: CB at 2.5 percent, CCB at 1 percent, SRB ranging within 1 to 3 percent (in place since 2014).
  - Tightening of maximum recommended LTV in Q2 2017 followed by a clear decline in new mortgages with LTVs above 80 percent and an increase in those with LTV between 70 and 80 percent.
  - Debt-servicing and loan-to-income ratios did not show meaningful improvement over the period.
- Denmark:
  - Consumer protection clause (2015) mandating at least a 5 percent down payment → 95 percent maximum LTV.
  - Share of new borrowers with LTV above 95 percent declined markedly; share with LTV between 80 and 90 percent declined slightly.
  - Guidelines on good business practices for housing credit (2017) promoted higher share of fixed-rate mortgages and limited excessive leverage by households with lower incomes.
- Hungary:
  - March 2010: 75/60/45 percent maximum LTV ratios for mortgages in local currency/euros/other currencies.
  - Beginning in 2015: maximum LTV ratios set at 80, 50, and 35 percent respectively; complemented with payment-to-income ratios (PTIs akin to DSTIs).
  - For borrowers with net monthly income below Ft 400,000 (about €1,250), PTI ratios are 50/25/10 percent. For borrowers with higher income, ratios are 60/30/15 percent.
  - Effective October 2018, and to be further tightened beginning in July 2019, PTI ratios modified to encourage longer interest rate fixing periods.
  - April 2017: mortgage funding adequacy ratio introduced.
  - Share of new housing loans with LTV over 70 percent more than halved to about 30 percent in H1 2017 compared with 2009.
- Norway:
  - Implemented higher capital and liquidity requirements (CB, CCB, SRB, D-SIIs), leverage ratios in 2013–17, and borrower-based measures (LTV limit, DTI limit, amortization requirements).
  - Following LTV cap, share of new loans with LTV above 85 percent declined.
  - DTI measure effective beginning of 2017 led to decline of about 7 percentage points in share of new mortgages with DTI cap of more than 500 percent in 2016; this share was 2 percent in 2017.
- Israel:
  - LTV caps (Nov 2012): 75 percent for first-time buyers and 50 percent for mortgages for investment properties.
  - March 2013: risk weights increased to 50 percent for LTV 45–60 percent, and to 75 percent for LTV above 60 percent.
  - Proportion of new mortgages with LTV >75 percent declined from 6 percent in Oct 2012 to 0.5 percent by Feb 2014.
- Slovak Republic:
  - LTV measures from 2014 and decision to set CCB to 0.5 percent improved lending standards and credit quality.
  - Share of new loans with LTV >90 percent fell to below 20 percent by Q2 2015 and to 6.3 percent by Q3 2016.
- Sweden:
  - Mortgage cap in 2010: new mortgage loans not to exceed 85 percent of home value.
  - Households limited by mortgage cap borrowed approximately 13 percent less and purchased homes approximately 10 percent less expensive than otherwise (Finansinspektionen 2017).
  - Cap had greatest effect outside metropolitan regions.
- Switzerland:
  - Early 2013: risk weights raised for part of residential mortgage in excess of 80 percent LTV.
  - Proportion of new mortgages with LTV >80 percent declined by about 5 percentage points in 2013.
  - First in Europe to activate the CCB in 2013: initial buffer 1 percent, raised to 2 percent in 2014.
  - Result: capital-constrained or mortgage-intensive banks raised mortgage rates; new mortgage loans shifted to better-capitalized and less-mortgage-intensive institutions.

### Impact on House Prices and Credit Growth
- Overall assessment:
  - Introduction of borrower-based MaPPs, supported by lender-based measures, influenced targeted dimensions (e.g., shares of high-LTV loans) while impact on house prices and overall credit growth was mixed.
  - A more conclusive evaluation requires completion of a full economic and financial cycle.
  - Circumvention of measures emerged as an issue in some cases.
- Country-specific notes:
  - Denmark: house price growth nationally not accompanied by rapid bank credit growth; mortgage-targeted measures unlikely to affect national house price dynamics.
  - Switzerland: after several MaPPs, real estate price growth and mortgage lending pace have gradually eased.
- Illustrative quantitative snapshots:
  - Example figure annotations show values: 16.7, 2.4, 15.9, 5.6, 15.2, 5.2, 12.7, 6.9 for annualized percent price change and associated credit growth series over sample periods (figure-specific context provided in source charts).

### What We Learned from Country Experiences — Key Lessons
- Effectiveness assessment is challenging; simple before-after comparisons show borrower-based and lender-based MaPPs affected directly targeted variables (notably reductions in high-LTV lending) but effects on house prices and total credit growth are inconclusive.
- Full-cycle evaluation needed for definitive conclusions.
- Circumvention needs to be addressed as part of policy design and enforcement.
- Country experiences highlight combinations of instruments:
  - Borrower-based measures (LTV, DTI/LTI, DSTI) often paired with lender-based capital buffers and risk-weight adjustments.
  - Complementary measures (consumer protection clauses, guidelines on business practices, funding adequacy ratios) enhance resilience beyond simple limits.

### 2. Hungary: House Prices and Housing Loans

- Recent trends and measures:
  - Growth rate of house prices has decelerated since late 2016, reflecting changes in the regulatory requirements since 2015 and some fiscal measures.
  - House price growth in Hungary appears to have stabilized, following the measures.
  - Among the policy instruments used more broadly in the region, borrower-side measures (LTVs, DTIs/LTIs, stepped-up amortization requirements) and lender-based measures (countercyclical capital buffers, systemic risk buffers, systematically important financial institution buffers, floors on risk weights) are noted; Hungary specifically restricted covered bond funding to low-LTV loans after the crisis to improve the stability of banks’ funding sources (IMF 2011).

- Effects on credit, prices, and circumvention (contextual evidence relevant to Hungary):
  - In some countries, MaPPs helped contain faster increases in house prices and credit; in contrast, in the Czech Republic, Hungary, and the Slovak Republic, house prices continued to grow rapidly after macroprudential measures were introduced, though the measures may have helped to contain faster increases.
  - Supplementing MaPPs with other policies can help effectiveness; in Hungary, an example of such a supplementary measure was the restriction of covered bond funding to low-LTV loans after the crisis.
  - Potential circumvention channels include nonbank financing and cross-border loans; the need to broaden application of MaPPs to avoid circumvention is highlighted.

- Key policy insights and implications:
  - MaPPs can reduce the share of riskier mortgages and help limit household debt growth; whether they can contain house price and credit bubbles while monetary policy remains accommodative is more difficult to establish.
  - Implementation of MaPPs is recent, and most countries (including Hungary) have not gone through a full economic and financial cycle, so a comprehensive evaluation of effects remains premature.
  - Complementary policy instruments—tax policy, mortgage interest deductibility, zoning, construction, and planning restrictions—should be considered alongside MaPPs; the appropriate mix depends on the specific forces driving excessive lending and house price increases.

*Source: International Monetary Fund | November 2018.*

### 2. Macroprudential Policies and House Prices in

### 2. Macroprudential Policies and House Prices in Europe: An Overview of Recent Experiences

### Types of Macroprudential Measures
- Loan-to-value (LTV) caps:
  - Since initial adoption, LTV caps tightened in: Czech Republic, Netherlands, Norway, Poland, the Slovak Republic.
- Debt-to-income (DTI)/loan-to-income (LTI) and debt service-to-income (DSTI) caps:
  - DSTI caps vary by borrower income level (Czech Republic, Hungary, Poland, Portugal, the Slovak Republic, Slovenia), currency of denomination (Cyprus and Hungary), LTV level (Lithuania), or interest fixing period/debt service frequency (Hungary and Slovak Republic).
  - Romania’s DSTI caps are determined by scenario analysis that considers currency, interest rate, and income risks.
  - In the Czech Republic, Ireland, Norway, the Slovak Republic, the DTI/LTI caps were introduced as a complement to LTV caps.
  - In the United Kingdom, only LTI caps have been implemented.
- Capital requirements:
  - Half of the EU countries have adopted the full Basel III capital conservation buffer (CB) of 2.5 percent of risk-weighted assets; others are phasing it in gradually.
  - All countries have introduced the countercyclical capital buffer (CCB), but only the Czech Republic, France, Iceland, Norway, the Slovak Republic, Sweden, Switzerland, and the United Kingdom have nonzero buffers.
  - A total of 13 countries have adopted the systemic risk buffer (SRB).
  - Poland has imposed a risk weight of 150 percent on foreign-exchange-denominated household mortgages.
- Sectoral risk-weight floors applied on commercial real estate (Croatia, Finland, Ireland, Norway, Romania, Sweden) and residential mortgages (Belgium, Croatia, Norway, Slovenia, Sweden).
- Other instruments mentioned: leverage ratio, liquidity coverage ratio, loan-to-deposit limits, maturity and amortisation restrictions, loss-given-default measures, stress testing, pillar II requirements.

### Adoption and Coverage (as of July 2018)
- Figures and cross-country summaries indicate broad adoption:
  - Use of LTV and DTI measures across many countries (count and timing series shown).
  - Use of loan amortization and maturity requirements in multiple countries (count and timing series shown).
  - Adoption of capital buffers: countries with full implementation of capital conservation buffer of 2.5 percent shown; others phasing in. Finland adopted SRB in June 2017 but it will not be activated until July 2019.
- Notable numeric references:
  - CCB nonzero buffers observed in: Czech Republic, France, Iceland, Norway, the Slovak Republic, Sweden, Switzerland, the United Kingdom.
  - SRB adopted by 13 countries.

### Impact on Riskier Mortgages — Country Findings
- General:
  - After LTV limits were imposed, the share of mortgage loans with LTVs exceeding those limits decreased in Czech Republic, Israel, Norway, Slovak Republic, Sweden, and Switzerland.
- Czech Republic:
  - Lender-based measures: CB at 2.5 percent, CCB at 1 percent, SRB ranging within 1 to 3 percent (in place since 2014).
  - Tightening of maximum recommended LTV in Q2 2017 followed by a clear decline in new mortgages with LTVs above 80 percent and an increase in those with LTV between 70 and 80 percent.
  - Debt-servicing and loan-to-income ratios did not show meaningful improvement over the period.
- Denmark:
  - Consumer protection clause (2015) mandating at least a 5 percent down payment → 95 percent maximum LTV.
  - Share of new borrowers with LTV above 95 percent declined markedly; share with LTV between 80 and 90 percent declined slightly.
  - Guidelines on good business practices for housing credit (2017) promoted higher share of fixed-rate mortgages and limited excessive leverage by households with lower incomes.
- Hungary:
  - March 2010: 75/60/45 percent maximum LTV ratios for mortgages in local currency/euros/other currencies.
  - Beginning in 2015: maximum LTV ratios set at 80, 50, and 35 percent respectively; complemented with payment-to-income ratios (PTIs akin to DSTIs).
  - For borrowers with net monthly income below Ft 400,000 (about €1,250), PTI ratios are 50/25/10 percent. For borrowers with higher income, ratios are 60/30/15 percent.
  - Effective October 2018, and to be further tightened beginning in July 2019, PTI ratios modified to encourage longer interest rate fixing periods.
  - April 2017: mortgage funding adequacy ratio introduced.
  - Share of new housing loans with LTV over 70 percent more than halved to about 30 percent in H1 2017 compared with 2009.
- Norway:
  - Implemented higher capital and liquidity requirements (CB, CCB, SRB, D-SIIs), leverage ratios in 2013–17, and borrower-based measures (LTV limit, DTI limit, amortization requirements).
  - Following LTV cap, share of new loans with LTV above 85 percent declined.
  - DTI measure effective beginning of 2017 led to decline of about 7 percentage points in share of new mortgages with DTI cap of more than 500 percent in 2016; this share was 2 percent in 2017.
- Israel:
  - LTV caps (Nov 2012): 75 percent for first-time buyers and 50 percent for mortgages for investment properties.
  - March 2013: risk weights increased to 50 percent for LTV 45–60 percent, and to 75 percent for LTV above 60 percent.
  - Proportion of new mortgages with LTV >75 percent declined from 6 percent in Oct 2012 to 0.5 percent by Feb 2014.
- Slovak Republic:
  - LTV measures from 2014 and decision to set CCB to 0.5 percent improved lending standards and credit quality.
  - Share of new loans with LTV >90 percent fell to below 20 percent by Q2 2015 and to 6.3 percent by Q3 2016.
- Sweden:
  - Mortgage cap in 2010: new mortgage loans not to exceed 85 percent of home value.
  - Households limited by mortgage cap borrowed approximately 13 percent less and purchased homes approximately 10 percent less expensive than otherwise (Finansinspektionen 2017).
  - Cap had greatest effect outside metropolitan regions.
- Switzerland:
  - Early 2013: risk weights raised for part of residential mortgage in excess of 80 percent LTV.
  - Proportion of new mortgages with LTV >80 percent declined by about 5 percentage points in 2013.
  - First in Europe to activate the CCB in 2013: initial buffer 1 percent, raised to 2 percent in 2014.
  - Result: capital-constrained or mortgage-intensive banks raised mortgage rates; new mortgage loans shifted to better-capitalized and less-mortgage-intensive institutions.

### Impact on House Prices and Credit Growth
- Overall assessment:
  - Introduction of borrower-based MaPPs, supported by lender-based measures, influenced targeted dimensions (e.g., shares of high-LTV loans) while impact on house prices and overall credit growth was mixed.
  - A more conclusive evaluation requires completion of a full economic and financial cycle.
  - Circumvention of measures emerged as an issue in some cases.
- Country-specific notes:
  - Denmark: house price growth nationally not accompanied by rapid bank credit growth; mortgage-targeted measures unlikely to affect national house price dynamics.
  - Switzerland: after several MaPPs, real estate price growth and mortgage lending pace have gradually eased.
- Illustrative quantitative snapshots (annualized percent price change over given periods shown in case figures):
  - Example figure annotations show values: 16.7, 2.4, 15.9, 5.6, 15.2, 5.2, 12.7, 6.9 for annualized percent price change and associated credit growth series over sample periods (figure-specific context provided in source charts).

### What We Learned from Country Experiences — Key Lessons
- Effectiveness assessment is challenging; simple before-after comparisons show borrower-based and lender-based MaPPs affected directly targeted variables (notably reductions in high-LTV lending) but effects on house prices and total credit growth are inconclusive.
- Full-cycle evaluation needed for definitive conclusions.
- Circumvention needs to be addressed as part of policy design and enforcement.
- Country experiences highlight combinations of instruments:
  - Borrower-based measures (LTV, DTI/LTI, DSTI) often paired with lender-based capital buffers and risk-weight adjustments.
  - Complementary measures (consumer protection clauses, guidelines on business practices, funding adequacy ratios) enhance resilience beyond simple limits.

*Source: International Monetary Fund | November 2018.*

### 2. Hungary: House Prices and Housing Loans

### 2. Hungary: House Prices and Housing Loans

### Recent trends and measures
- Growth rate of house prices has decelerated since late 2016, reflecting changes in the regulatory requirements since 2015 and some fiscal measures.
- House price growth in Hungary appears to have stabilized, following the measures.
- Among the policy instruments used more broadly in the region, borrower-side measures (LTVs, DTIs/LTIs, stepped-up amortization requirements) and lender-based measures (countercyclical capital buffers, systemic risk buffers, systematically important financial institution buffers, floors on risk weights) are noted; Hungary specifically restricted covered bond funding to low-LTV loans after the crisis to improve the stability of banks’ funding sources (IMF 2011).

### Effects on credit, prices, and circumvention (contextual evidence relevant to Hungary)
- In some countries, MaPPs helped contain faster increases in house prices and credit; in contrast, in the Czech Republic, Hungary, and the Slovak Republic, house prices continued to grow rapidly after macroprudential measures were introduced, though the measures may have helped to contain faster increases.
- Supplementing MaPPs with other policies can help effectiveness; for Hungary, an example of such a supplementary measure was the restriction of covered bond funding to low-LTV loans after the crisis.
- The report notes potential circumvention channels (nonbank financing, cross-border loans) and the need to broaden application of MaPPs to avoid circumvention; while not Hungary-specific in the supplied text, these considerations are presented as general lessons relevant to jurisdictions including Hungary.

### Key policy insights and implications
- MaPPs can reduce the share of riskier mortgages and help limit household debt growth; whether they can contain house price and credit bubbles while monetary policy remains accommodative is more difficult to establish.
- Implementation of MaPPs is recent, and most countries (including Hungary) have not gone through a full economic and financial cycle, so a comprehensive evaluation of effects remains premature.
- Complementary policy instruments—tax policy, mortgage interest deductibility, zoning, construction, and planning restrictions—should be considered alongside MaPPs; the appropriate mix depends on the specific forces driving excessive lending and house price increases.

*Source: IMF staff analysis, “2. Hungary: House Prices and Housing Loans,” Regional Economic Outlook: Europe (November 2018).*

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_Source: https://www.imf.org/-/media/files/publications/reo/eur/2018/november/eur-reo-ch2.pdf_