This paper studies the effects on the Italian residential property market of the hypothetical adoption of two borrower-based measures: an 80 percent loan-to-value (LTV) cap and a 30 percent loan-service-to-income (LSTI) ratio cap. The analysis is conducted using an agent-based model that has been calibrated using machine learning algorithms.
In Italy, the adoption of LTV and LSTI caps will likely lead to a modest and short-lived reduction both in house prices and in the number of house sales. The reduction in mortgage defaults is also found to be relatively modest. These results reflect the high degree of financial soundness of Italian households and the already low LTV and LSTI ratios in the Italian mortgage market.
