The Effects of Macroprudential Policies on Mortgage Lending Firms: A Study About Swedish Mortgage Lending Restrictions

Ibrahim Makdessi Afrem & Josefin Karlsson

Student thesis: Master thesis


In recent years, macroprudential policies in the form of lending restrictions have been implemented in Sweden with the objective of slowing down the increased indebtedness among households. The implemented restrictions are an LTV cap, an amortisation requirement and an extended amortisation requirement, which all apply for new mortgage loans. The restrictions are believed to impact the overall systematic risk, mortgage loan levels and prices in the housing market. The restrictions will therefore indirectly affect mortgage lending firms. The purpose of this study is to examine the mortgage lending restrictions’ impact on profit and risk of mortgage lending firms. The impacts are measured by stock price reactions of the announcement of each restriction. The mortgage lending market in Sweden is dominated by four banks, which are the only firms fulfilling all criterions set for a firm to be relevant for this study. Two of the firms have dual share classes of stock, both stocks of these firms are included in the sample. An event study approach is taken to determine whether the returns of the stocks were abnormal around the announcement of each restrictions. First, a standard event study is conducted where cumulative abnormal returns for each stock is tested for significance and is complemented with a rank test that examines abnormal returns at a portfolio level. Second, event study-based regression models are conducted to determine the size of abnormal returns. The regressions are run on both an equally weighted portfolio of all stocks and on an individual stock basis. The results of this study indicate a positive investor reaction of the LTV cap, implying that the lending restriction is positive for the profit and risk of mortgage lending firms. On the contrary, negative abnormal returns are found in relation to both amortisation requirements. The results suggest that the amortisation requirements are negative for the profit and risk of mortgage lending firms. Based on the regression models, no conclusions can be made regarding the size of the abnormal returns at a portfolio level. At a stock level, no significant results are found for the LTV cap. For both amortisation requirements, SEB A and Nordea are found to have negative abnormal returns. The finding contradictsthe hypothesis that firms with higher mortgage loans-to-total assets ratios will be more affected. The impact of the first amortisation requirement is negative but relatively small for SEB A and Nordea. A final finding in this study is related the dual share class of SEB which shows an unexpected discrepancy in stock return development.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
Publication date2019
Number of pages123
SupervisorsSøren Plesner