The Importance of Setting Limits in Disbursement Process of Housing Loans

A rapid expansion of mortgage markets and consequent increased portion of housing loans was inherent for many emerging countries. In a long lasting period, positive economic conjuncture was followed with the housing loan expansion in emerging economies. People in emerging countries were focused on resolving their residential issues through taking housing loans from banks. Banks, which disburse those loans, intend to maintain a high quality of credit portfolio and in that sense limit the risk derived from some categories (such as: housing loans). Limitation on housing loans could be realized in several ways, but the most appropriate one is the usage of loan-to-value (LTV) ratio. The aim of this paper is to present the main characteristics of loan-to-value ratio and to indicate different practices with treatment of LTV ratio in some countries.