Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania

IMF Working Papers, October 27, 2023

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Canonical URL: Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania

Objective: Assess the adequacy of borrower-based measures’ (BBMs) parametrization in Lithuania and evaluate whether the BBM package contained excessive mortgage growth and mortgage credit risk during the low-interest-rate period.
Methodology: Built a novel lifetime expected credit loss framework grounded on actual loan-level default and household income data.

The BBM package effectively contains mortgage credit risk.
Housing loans are more resilient to stress than in the preregulatory era.
Calibration exercise results:
- (1) In the low-rate environment, income-based measures could have been tighter.
- (2) Borrowers taking out secondary mortgages rightly are and should be required to pledge a higher down payment.

Subject: Credit risk; Financial institutions; Financial regulation and supervision; Financial sector policy and analysis; Housing prices; Loans; Macroprudential policy instruments; Mortgages; Prices
Keywords: Baltics; BBM package; borrower-based measures; calibration exercise; Credit risk; Europe; Global; Housing prices; lifetime expected loss; Lithuania's housing market; Loans; LTV; macroprudential policy; Macroprudential policy instruments; modeling mortgage risk; mortgage credit risk; Mortgages; probability of default

The BBM package increased resilience of housing loans to stress compared with the preregulatory era.
Policymakers should consider tighter income-based borrower constraints in prolonged low-rate environments.
Higher down payment requirements are justified for secondary mortgages to mitigate elevated risk.

IMF Working Papers — Micro-Assessment of Macroprudential Borrower-Based Measures in Lithuania (Working Paper No. 2023/227), October 27, 2023.