This work proposes a model with heterogeneous agents (agent-based model) to assess the effects of the hypothetical introduction of a cap on the ratio between the value of the mortgage and the value of the collateral (loan-to-value, LTV) in the Italian residential real estate market. The simulations consider various scenarios, including a trend of growing household indebtedness, as well as different methods and timings for introducing the cap.
The hypothetical introduction of a cap on the LTV would reduce both the rate of mortgage deterioration for households and the stock of non-performing loans on banks' balance sheets in the majority of cases. The presence of an upper limit on the LTV would be particularly useful in contexts characterized by high and rising household indebtedness. In these cases, the measure would slow down the growth of housing prices, reducing both household indebtedness and credit risk for banks.
