top of page
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute
Asian Institute of Research, Journal Publication, Journal Academics, Education Journal, Asian Institute

Economics and Business

Quarterly Reviews

ISSN 2775-9237 (Online)

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, managemet journal
crossref
doi
open access

Published: 13 July 2022

Household Debt Behavior and Response to Interest Rates and LTV Policy

Hesti Werdaningtyas, Agni Alam Awirya, Azka Azifah Dienillah, Cahya Idzni Igawati

Central Bank of Indonesia, Indonesia

asian institute research, jeb, journal of economics and business, economics journal, accunting journal, business journal, management journal

Download Full-Text Pdf

doi

10.31014/aior.1992.05.03.434

Pages: 41-53

Keywords: Household Saving, Borrowing, Debt, and Wealth, Household Behavior, Interest Rates, Loan to Value

Abstract

Household debt has a significant role in influencing financial stability. This study aims to determine the impact of household characteristics and interest rates on household credits. Furthermore, determine the impact of the amount of LTV policies on interest rates on growth and potential risks of home loans and household credits. The study uses data from the Financial Services Authority (OJK), namely Financial Institution Information System, and data Household Balance Survey from 2017 to 2019. This study uses two steps: ordinary least squares (OLS) and autoregressive distributed lag (ARDL). In the OLS regression, household credit is the dependent variable, and collectability and income class are independent dummy variables. Analysis with time series regression using ARDL. The estimation results show that the increase in household credit is influenced by the characteristics of income, age, and interest rates. For household credits above quantile 0.75, interest rates do not affect the household. In the short term, loosening LTV will increase home loan growth and encourage an increase in potential credit risk. In the long term, losing LTV will increase housing loan growth and the potential threat. The study recommends using interest rates and LTV to encourage household credit, including home loans.

References

  1. Albouy, D. (2004). The Colonial Origins of Comparative Development A Reexamination Based on Improved Settler Mortality Data. Department of Economics, University of California — Berkeley.

  2. Bian, X., Lin, Z., & Liu, Y. (2018). House Price, Loan-To-Value Ratio, and Credit Risk. Korma/ of Banking & Finance 92.

  3. BIS (2009). Household Debt: Implications for Monetary Policy and Financial Stability. Bank for International Settlement.

  4. Craig, R., & Hua, C. (2011). Determinants of Property Prices in Hong Kong SAR: Implications for Policy. IMF Working Papers.

  5. Fortin, M., & Leclerc, A. (2007). Determinants of Mortgage indebtedness in Canada. Cartiers de recherche 07- I I, Departement d’Economique de l’Ecole de gestion â l’Université de Sherbrooke.

  6. Gerlach, S., & Peng, W. (2005). Bank lending and property prices in Hong Kong. Journal of Banking & Finance, vol. 29, issue 2, 461-481.

  7. Jacome, L. I., & Mitra, S. (2015). LTV and DTI Limits—Going Granular. IMF Working Paper No. WP/15/154.

  8. Jensen, T., & Johannesen, N. (2017). The Consumption Effects of the 2007-2008 Financial Crisis: Evidence from Households in Denmark. American Economic Review Vol. 107.

  9. Krznar, I., & Morsink, J. (2014). With Great Power Comes Great Responsibility: Macroprudential Tools at Work in Canada. IMF Working Papers.

  10. Lam, K., Dunsky, R., & Kelly, A. (2013). Impacts of Down Payment Underwriting Standards on Loan Performance – Evidence from the GSEs and FHA portfolios. FHFA WORKING PAPERS.

  11. Lin, Liqiong Wang, Weizhuo Gan, Christopher dan Nguyen, Quang T. (2019). Credit Constraints on Farm Household Welfare in Rural China: Evidence from Fujian Province. MDPI

  12. Morgan, P. J., Regis, P. J., & Salike, N. (2015). Loan-to-Value Policy as a Macroprudential Tool: The Case of Residential Mortgage Loans in Asia. ADBI Working Paper Series.

  13. Sugiono. (2011). Education Research Method (Qualitative, Quantitative, R&D approaches). Bandung: Alfabeta.

  14. Swain, R. (2008). The Demand and Supply of Credit for Households. Applied Economics, 39(21), 2681-2692.

  15. Wong, T. C., Fong, T., Li, K. F., & Choi, H. (2011). Loan-to-Value Ratio as a Macroprudential Tool- Hong Kong’s Experience and Cross-Country Evidence.Systemic Risk, Basel III, Financial Stability and Regulation.

  16. Zabai, A. (2017). Household debt: recent developments and challenges. 8/5 Quarterly Review, Bank for International Settlements.

bottom of page