Consumer borrowing after regulations on mortgages : an empirical analysis of the impact of stricter residential mortgage regulations on the use of consumer credit loans in Norway.

Abstract

Over the past six years, consumer credit loans have grown at twice the rate of mortgage loans. Yet, policymakers have up to now only manifested regulations on lending practices for residential mortgage loans. In this thesis, we investigate how consumer credit borrowing has changed in regard to house prices in the event of the policy shifts in 2015 and 2017. Drawing on data from a bank offering consumer credit loans and a consumer loan-agent, we find that consumer credit loans increased with house prices in contrast to pre-regulation in which house prices impacted consumer credit loans negatively. By using the difference-in-difference method, our results show that the effect is more prominent in areas where higher educated people reside as well as in the areas outside the four largest cities in Norway. The results are consistent with arguments that people substitute low-cost mortgages with high-cost consumer credit loans. Hence, the empirical findings are inconsistent with the regulation`s goal of reducing household debt in Norway.