A stable, well-functioning financial market for allA stable, well-functioning financial market for allFI analysis 5: Macroeconomic effects of dept-to-income limits
House prices have been rising and, as a result, so has the debt of households in relation to their income – i.e. their debt-to-income (DTI) ratios. A DTI limit could slow this trend, but limiting households' opportunities to borrow would also slow consumption and economic activity.
We have studied different formulations of a DTI limit and found that they slow the rate at which debt increases. The DTI limits also have a negative effect on GDP growth. The larger the group restricted by the DTI limit, the slower the growth rate of both debt and GDP.
However, a DTI limit would make households more resilient to shocks. This decreases the risk and consequences of a future financial crisis, as well as softening business cycle fluctuations. The larger the group restricted by the DTI limit, the smaller the risk and consequences of a future financial crisis.
(This article was first published on fi.se in Swedish 2016-05-26.)
