How can we dampen the build-up of housing price bubbles?

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Title: How can we dampen the build-up of housing price bubbles?
Author: Topi, Jukka ; Vauhkonen, Jukka
Organization: Bank of Finland
Series: Bank of Finland. Bulletin
Series volume: 91
Series number: 2/2017
Year of publication: 2017
Publication date: 10.5.2017
Pages: 49-57
Subject (yso): asuntolainat; velkaantuminen; asunnot; hinnat; luotot; riskit; sääntely; tulot
Keywords: kotitaloudet; makrovakausvälineet; Suomi
Other keywords: households; housing loans; indebtedness; macroprudential instruments
Abstract: Finland has prepared for risks on residential mortgage loan markets by setting a maximum loan-to-value ratio for housing loans. In addition, preparations are currently underway for imposing minimum risk weights on housing loans granted by banks. On top of these, to curb borrowing it would be advisable to consider the adoption of tools that take household income into account, such as loan-to-income caps. In this article, we use simple examples to illustrate how such instruments could be deployed to restrain dangerous growth in lending for house purchase and household debt, but will not express an opinion on the superiority of one tool over the others. Different instruments supplement each other, and no individual tool can solve all problems.

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