The implication of loan-to-value ratio on credit housing demand in Indonesia

Housing is one of the basic needs in people's lives. Most people purchase a house or houses through a mortgage program. This encourages the Indonesian government to set the down payment based on the Loan-to-Value (LTV) ratio. This study aims to analyze the implication of the LTV ratio and other effects on housing demand. This study uses secondary data on a monthly basis between March 2012 and December 2017. Based on the results of estimation using the dynamic model Error-Correction Model-Engle Granger (ECM-EG), this study finds that in the short-term period, credit housing demand is influenced by income. The influence of mortgage rates and population also affect credit housing demand in the long term but are not statistically significant. However, housing price, income, and LTV ratio are found to have a statistically significant effect on credit housing demand in the long-term period. The theory of demand being influenced by high prices does not apply to housing demand. Therefore, the implications of the LTV ratio as a financial construct to control housing demand in the housing market is best observed in the long-term period. In addition, there are other factors that affect the demand for housing on credit which need to be considered.