Kopafbeelding publicaties CPB

Collateral Damage? Decreasing House Prices and Entrepreneurial Lending

CPB Discussion Paper 351, 12 May 2017

We study the effect of housing collateral on entrepreneurial lending in the Netherlands. This residential collateral channel is especially relevant for sole proprietors for whom there is no legal distinction between the owner and the business. We make use of unique administrative data on outstanding bank credit of all Dutch sole proprietorships in the period 2007 - 2012. Our estimates indicate that home owning entrepreneurs were hit less severe in the times of crisis than renting entrepreneurs.

Relative to renters, during the economic crisis, the incidence of having outstanding bank credit decreased 2% percent less for home owners. Home owners also experience a 40 basis points weaker increase in costs of credit compared to renters. Within the group of home owners higher LTVs only go along with higher prices during the crisis relative to lower LTVs.

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