What impact do financial advisors have on the terms of mortgage loans, and how does the market respond to tighter rules? These questions were examined by Martin Cesnak and Andrej Cupak (affiliated with the National Bank of Slovakia and NHF), together with co-authors Pirmin Fessler (Austrian National Bank) and Ján Klacso (National Bank of Slovakia), in a study published in the prestigious Journal of Financial Stability.
In their research, they analyzed nearly 360,000 mortgage loans from Slovak banks between 2013 and 2022, exploring how loan intermediation through financial advisors shapes loan parameters and how regulation affects them. We spoke with the authors about what their findings reveal regarding the behavior of borrowers, banks, and advisors during periods of regulatory change—and what policymakers and regulators should take away from this.
Your research shows that mortgages arranged through financial advisors systematically differ from direct loans. Can you tell us more?
Yes, the differences are systematic and consistent across the entire period studied. Loans intermediated by financial advisors are, on average, larger, have longer maturities, and exhibit higher values of key risk indicators—specifically higher LTV (loan-to-value ratio) and DTI (debt-to-income ratio).
These differences persist even after accounting for borrower and bank characteristics, suggesting that the intermediation channel itself plays an independent role in shaping loan parameters. There may be several reasons: advisors may have better knowledge of products and limits, stronger bargaining power, or their incentive structures may also play a role. For regulators, the key takeaway is that this channel is not neutral in terms of risk.
One key finding is the phenomenon of “front-loading”—increased demand for loans after the announcement but before the implementation of new limits. Who engaged in this behavior the most, and why?
“Front-loading” was more pronounced in loans intermediated through financial advisors. Our data show that in the period between the announcement and the implementation of new limits, there was a statistically and economically significant increase in loan volumes, especially in the advisor-mediated segment.
Pinpointing the exact cause is difficult. It may be related to advisors having more information about upcoming changes, actively informing clients, accelerating the loan approval process, or their clients being more motivated to maximize loan amounts. In any case, the results suggest that intermediaries play an important role in transmitting regulatory changes to the market.
Your research mentions that after the introduction of limits, loans that were previously safer began to cluster just below new regulatory thresholds. What does this mean?
We call this phenomenon “bunching”—the concentration of loans just below regulatory thresholds. After LTV limits were introduced, we observed a shift in the distribution of loans, with a significant increase in loans just below the 80% and 90% LTV thresholds. This is consistent with borrowers adjusting to the limits.
However, it’s important to note that the overall effect of regulation on portfolio risk is driven by multiple forces. While limits restrict riskier lending, they may also push some borrowers—who were previously well below the thresholds—closer to them. We do not claim that regulation increased overall risk; rather, its effects are heterogeneous and depend on where borrowers were positioned before the limits were introduced.
Additionally, we found that stricter DSTI (debt service-to-income) limits not only reduced DSTI but were also associated with changes in DTI, LTV, and loan volumes, highlighting the interdependence of these indicators. For regulators, this underscores the importance of continuously monitoring portfolio risk, especially as the structure of lending may change, and adjusting limits if necessary.
What practical recommendations for policymakers or regulators emerge from your research?
The results highlight the importance of detailed microdata at the individual loan level when evaluating the effectiveness of macroprudential measures. Regulators should monitor not only average risk indicators but also the distribution of loans around regulatory thresholds. Significant clustering just below limits may signal market adaptation that requires closer attention.
Our findings also suggest that financial intermediaries play a meaningful role in how regulation is transmitted and should be incorporated into analytical frameworks when assessing policy impacts. Finally, the interaction of multiple limits (LTV, DTI, DSTI) deserves careful attention, as changes in one may be linked to shifts in others.
What questions has your research opened for future work?
We would like to take a deeper look at the long-term performance of loans intermediated by advisors—specifically whether differences in loan parameters at origination translate into differences in repayment behavior.
In the future, it would also be valuable to conduct cross-country comparisons using similar data. Moreover, upcoming changes to LTV limits—loosening for first-time buyers and tightening for investment purchases—create opportunities for further analysis.
