The Case for Borrower-Based Macroprudential Measures in Spain

House prices in Spain have risen rapidly since the pandemic, and the share of riskier mortgages at issuance has increased, suggesting a potential buildup of mortgage-related vulnerabilities. This paper provides analytical inputs to inform the potential design and calibration of borrower-based measures (BBMs), currently not activated in Spain. It first reviews international experience with BBMs, then uses Spanish loan-level data and scenario-based stress tests to assess alternative calibrations. The results suggest that loan-to-value caps would deliver the largest reduction in default risk and mortgage portfolio losses, with additional gains from income-based caps. BBMs would complement capital buffers by addressing risks at origination.