["Real Estate Economics, EarlyView. ", "\nAbstract\nPolicies that limit mortgage leverage face an inherent trade‐off between the benefits of reduced indebtedness and the erosion of liquidity buffers through larger downpayment requirements. Governmental downpayment subsidies, while not designed to address this trade‐off, can potentially alleviate it, particularly where borrowers are liquidity‐constrained. Exploiting a largely unanticipated increase in government subsidies toward downpayments in Ireland, we estimate that borrowers reduce their out‐of‐pocket downpayments substantially, improving their liquidity position. They also borrow less, at lower leverage ratios, providing an alternate potential transmission channel in a literature that has previously focussed on house price and housing supply effects."]