Macroprudential policy and housing market expectations

Kuang, P., Mitra, K., Tang, L. ORCID: https://orcid.org/0000-0001-7119-3186 and Shihan, X. (2026) Macroprudential policy and housing market expectations. European Economic Review, 181. 105191. ISSN 1873-572X doi: 10.1016/j.euroecorev.2025.105191

Abstract/Summary

This paper studies how macroprudential policy changes affect consumers’ housing market expectations and housing affordability perceptions in the United Kingdom. We conduct a large-scale online survey experiment presenting hypothetical changes of three borrower- based macroprudential tools: residential loan-to-value (LTV), buy-to-let LTV, and loan-to- income ratios. We find that policy tightening lowers house price expectations, reduces homebuying intentions, and worsens affordability assessments, while loosening has the opposite effects. The residential LTV ratio is the most effective tool. To interpret these findings, we embed our survey estimates into a dynamic model linking expectations, credit, and housing demand. The model shows that immediate belief shifts significantly amplify house price and consumption responses, highlighting the importance of expectations in the transmission of macroprudential policy.

Item Type	Article
URI	https://centaur.reading.ac.uk/id/eprint/125478
Identification Number/DOI	10.1016/j.euroecorev.2025.105191
Refereed	Yes
Divisions	Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
Publisher	Elsevier
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