Loan-to-value ratio and uncertainty

We examine how uncertainty affects the loan-to-value (LTV) ratio, with a focus on identifying which types of uncertainty–such as those related to macroeconomy, financial market, housing market, and economic policy–are most impactful, using a VAR model. Our finding reveals that the LTV ratio declines in response to increased uncertainty, suggesting that uncertainty plays a significant role in shaping the LTV ratio. Notably, uncertainties in the financial and housing markets substantially decrease the LTV ratio for newly originated mortgage loans, challenging the exogenous collateral constraint framework. Additionally, it shows delayed and hump-shaped responses. These results differ from theoretical predictions.