A decade of borrower-based measures in the banking union

Prepared by Elena Durante, Marek Rusnak and Eugen Tereanu^[1]

Published as part of the Macroprudential Bulletin 29, June 2025.

Borrower-based measures (BBMs) are critical tools in the banking union’s macroprudential policy frameworks. They are designed to promote sustainable lending practices and strengthen the resilience of borrowers, lenders and the broader economy. Over the past decade, the adoption of BBMs has significantly increased across countries in the banking union, likely reflecting their effectiveness. This article reviews ten years of experience with the implementation of BBMs within banking union countries, with a view to facilitating peer learning and providing a comprehensive overview of BBM strategies and applications.

1 Introduction

Borrower-based measures (BBMs) have become essential elements of the macroprudential policy toolkit in the banking union. BBMs, also known as regulatory limits to residential real estate lending standards, such as loan-to-value (LTV), debt service-to-income (DSTI), debt-to-income (DTI) ratios and loan maturity, aim to ensure sustainable lending practices that ultimately support the resilience of borrowers, lenders and the broader economy. Residential real estate lending standards tend to loosen during an economic or financial cycle upturn. This leads to excessively risky new lending and a build-up of vulnerabilities which, in turn, can jeopardise financial stability (Article 1). BBM policies can backstop minimum levels of prudent lending standards at all times, but particularly during the upswing phase of the economic or financial cycle. Therefore, a crucial aspect of any successful BBM strategy is to implement the measure early in the cycle and maintain it throughout.

The progressive adoption of BBMs across banking union countries over the past decade is an implicit acknowledgement of their policy effectiveness (Table 1). The number of countries implementing BBMs, such as limits on the DSTI ratio, almost tripled between 2015 and 2025. More generally, BBMs addressing primarily residential real estate vulnerabilities are currently in place in almost all banking union countries. As of 2025, 18 out of 21 banking union countries have at least one active measure.^[2] The calibration and design of the instruments differ across countries likely reflecting national specificities.^[3]

Against this background, this article reviews the implementation of BBMs over the past decade. It seeks to enhance peer learning and provide an updated stocktake of BBM strategies and designs across countries in the banking union.

Table 1

Almost all banking union countries currently have BBMs in place.

Overview of implemented and announced BBMs across banking union countries

(limits defined under national frameworks)

2 Using combinations of BBMs as a structural backstop

The effectiveness of BBMs in ensuring sound and sustainable lending standards underpins their structural application by many banking union countries. The small number of instrument recalibrations over time as well as the gradual but steady increase in the number of countries implementing additional measures since 2015 point to a structural^[4] use of BBMs (Chart 1, panel a). When necessary, limited adjustments can be made to avoid unwarranted bindingness. Their consistent application through the cycle provides a stable reference for an appropriate minimum level of lending standards. This consistency helps to ensure risks are mitigated automatically and in a timely manner when lending standards loosen and it sustains the debt repayment capacity of households and the resilience of banks through the cycle. Besides these financial stability benefits, maintaining adequately calibrated BBMs throughout the cycle – or implementing them early in the cycle if they are not yet in place – may also be more socially acceptable, as they help avoid a situation in which too many borrowers simultaneously face restricted access to housing credit during upturns.^[5]

Countries have generally implemented a mix of collateral (LTV), income-based (DTI or DSTI) and maturity limits.^[6] As of 2025 more than half of the countries with active BBMs in place have implemented a combination of collateral (LTV), income-based (DTI or DSTI) and maturity limits (Chart 1, panel b). This marks a significant increase in the use of multiple instruments compared with a decade ago. Designing and calibrating BBMs jointly also helps to prevent unintended effects or circumvention (e.g. unwarranted maturity extensions to comply with DSTI limits). Only a few macroprudential authorities with active BBMs deviate from implementing a combination of tools, often for country-specific reasons.

Chart 1

BBMs are commonly used as a structural backstop to avoid an excessive loosening of lending standards and are implemented in combination to enhance their effectiveness.

a) Implementation and recalibration of BBMs	b) Use of BBMs by type of instrument
(left-hand scale: number of LTV/DSTI recalibrations; right-hand scale: number of countries)	(number of cases activating main limits and the specified combination)

3 Fine-tuning the design of BBMs – the role of flexibility elements

The design of BBMs often includes flexibility elements such as differentiated limits and/or exemptions. Macroprudential limits to lending standards like the LTV or DSTI can be calibrated at different levels across various categories of borrowers (e.g. first-time buyers, second and subsequent buyers, owner-occupied residencies and buy-to-let properties). In addition, differentiated limits can be complemented by or replaced with exemptions (also known as allowances or speed limits). Exemptions refer to the percentage share of new lending over an identified period (e.g. a quarter) that is permitted above the main limits. Such elements enhance the risk-targeting and countercyclical effectiveness of BBMs while helping to ensure social and political acceptance.

A loan-level analysis suggests that lending standards tend to differ systematically across groups of borrowers. Younger and lower-income borrowers, who are typically considered riskier, tend to have higher lending standards. The analysis suggests that for younger borrowers, LTVs are on average 11 percentage points higher relative to mature borrowers (Chart 2, panel a). Similarly, the LTIs of lower-income borrowers are approximately 400 percentage points higher on average than those of upper-middle income borrowers. This illustrates how imposing the same limit on all borrowers can have disproportionate effects on specific groups. It also shows that differentiating limits across borrower groups may help avoid unintended distributional effects, particularly if policymakers wish to take into account other (social) policy objectives besides financial stability.

Incorporating flexibility elements into the design of BBMs can improve risk targeting while supporting access to lending throughout the cycle. The design of BBMs can take into account social policy considerations such as credit market access (i.e. not unduly constraining the affordability of housing finance for certain borrowers). Exemptions also give more flexibility to lenders, enabling them to account for the diverse risk profiles of borrowers and for data uncertainty. At the same time, the negative impact of loose lending standards tends to be particularly pronounced when a large share of new lending is directed towards borrowers who are subject to such standards. Therefore, a limited and prudent use of exemptions can support flexibility without jeopardising financial stability.

Many banking union countries already incorporate flexibility elements into the design of BBMs. Seven countries in the banking union differentiate their LTV and L/DSTI limits by first-time buyers and second and subsequent buyers. 11 countries use exemptions to L/DSTI limits and ten use exemptions to LTV limits (Chart 2, panel b). In these cases, up to one-third (and mostly between 10% and 20%) of new lending is permitted above the main limits, balancing flexibility with the need to avoid too strong a loosening of the main limits.

Chart 2

Flexibility elements can improve the balance between risk mitigation and access to credit markets throughout the cycle.

a) Lending standards by age and income cohorts	b) Number of countries implementing BBM exemptions
(left-hand panel: percentage point differences, right-hand panel: percentages)	(number of countries; figures indicate the range of exemption calibration in %)

4 Conclusion

This article looks at the use of BBMs across countries in the banking union by examining their implementation, design and calibration and draws three main conclusions. First, the use of BBMs as a structural backstop appears to have gained traction as a successful policy strategy to safeguard prudent lending standards throughout the cycle. Second, an increasing number of countries use combinations of collateral (LTV) and income-based (either DTI or DSTI) macroprudential limits to take advantage of their complementarity, which can enhance financial stability and help prevent policy circumvention. Finally, including flexibility elements, such as differentiated limits or exemptions to target specific borrower groups, in the design of BBMs can help improve the balance between risk mitigation and access to credit markets throughout the economic cycle.

References

Ampudia, M. et al. (2021), “On the effectiveness of macroprudential policy”, Working Paper Series, No 2559, ECB, May.

Behn, M. and Lang, J.H. (2023), “Implications for macroprudential policy as the financial cycle turns”, Macroprudential Bulletin, No 22, ECB, July.

BIS (2023), “Macroprudential policies to mitigate housing market risks”, CGFS Papers, No 69, December.

Biljanovska, N. et al. (2023), “Macroprudential Policy Effects: Evidence and Open Questions”, Departmental Papers, No 2023/002, IMF, March.

Lo Duca, M. et al. (2023), “The more the merrier? Macroprudential instrument interactions and effective policy implementation”, Occasional Paper Series, No 310, ECB, March.

Tereanu, E. et al. (2022), “The transmission and effectiveness of macroprudential policies for residential real estate”, Macroprudential Bulletin, No 19, ECB, October.