The Effect of Mortgage Regulation on Entrepreneurship

Abstract

Limits on mortgage debt-to-income ratios are particularly costly for self-employed borrowers. I use local variation in exposure to the Ability-to-Repay and Qualified Mortgage rule to identify this unintended consequence of consumer financial protection regulation. By limiting mortgage payment size as a share of stable, documented income, the rule cut credit to households with business income and reduced self-employment by 1.4 per cent. The rule also led to a decline in employment at new small businesses.