Household Debt Behavior and Response to Interest Rates and LTV Policy

Abstract

Household debt has a significant role in influencing financial stability. This study aims to determine the impact of household characteristics and interest rates on household credits. Furthermore, determine the impact of the amount of LTV policies on interest rates on growth and potential risks of home loans and household credits. The study uses data from the Financial Services Authority (OJK), namely Financial Institution Information System, and data Household Balance Survey from 2017 to 2019. This study uses two steps: ordinary least squares (OLS) and autoregressive distributed lag (ARDL). In the OLS regression, household credit is the dependent variable, and collectability and income class are independent dummy variables. Analysis with time series regression using ARDL. The estimation results show that the increase in household credit is influenced by the characteristics of income, age, and interest rates. For household credits above quantile 0.75, interest rates do not affect the household. In the short term, loosening LTV will increase home loan growth and encourage an increase in potential credit risk. In the long term, losing LTV will increase housing loan growth and the potential threat. The study recommends using interest rates and LTV to encourage household credit, including home loans.