Why Central Banks Are Turning to Loan-to-Value Caps

When central banks want to cool a housing bubble without raising interest rates, they reach for a tool called the loan-to-value cap. In this episode, Lucas and Luna explain how LTV limits work by examining the case of New Zealand's Reserve Bank, which in 2021 imposed a 40 percent deposit requirement on investors buying in Auckland. They walk through why standard rate hikes can backfire in a housing boom, how LTV caps directly target the most leveraged buyers, and what happens when regulators start loosening those caps again — as New Zealand did in 2023 after prices fell 18 percent from their peak. The hosts also explore the trade-offs: LTV caps protect banks from risky mortgages but can squeeze first-time buyers out of the market. They close by asking whether this macroprudential tool is becoming the new normal for central banks facing asset bubbles without the political cover to raise rates. #LoanToValue #LTV #CentralBanks #MacroprudentialPolicy #HousingBubble #NewZealand #ReserveBankOfNewZealand #RBNZ #InterestRates #FinancialStability #MortgageMarket #AucklandHousing #PropertyInvestors #FirstTimeBuyers #Economics #MonetaryPolicy #FexingoBusiness #BusinessPodcast Keep every episode free: buymeacoffee.com/fexingo