Miroslav Plašil, Zlatuše Komárková
This article presents the CNB’s approach to setting the LTV limit. It recalls the main objective of applying this macroprudential instrument – to increase the resilience of domestic mortgage lenders – and summarises the positive and undesirable side-effects associated with calibrating the limit, changing it, and timing its introduction. The main part of the article employs a set of macrofinancial scenarios to analyse the effect of variously stringent LTV limits on property prices and credit losses. The aim is to find the optimum LTV limit, that is, the one which strikes the right balance between making the Czech financial system sufficiently resilient to risks stemming from the mortgage market and minimising the potential negative effects associated with applying the instrument. The analyses reveal that an LTV limit of 80%–85% appears to be optimal in a situation of large excess demand for property. Limits below 80% do not contribute significantly to increasing the resilience of domestic mortgage lenders and do not have a countercyclical effect on domestic residential property prices.
Issued: April 2022
Download: Thematic article on financial stability 1/2022 (pdf, 679 kB)