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The determinants of unsecured borrowing: evidence from the British Household Panel Survey

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  • Ana Del-Rí­o
  • Garry Young

Abstract

Household indebtedness has risen sharply in recent years, with large increases in both secured and unsecured borrowing. In this paper, waves 5 and 10 of the British Household Panel Survey (BHPS) for 1995 and 2000 are used to examine the determinants of participation in the unsecured debt market and the amount borrowed. Probit models for participation are estimated and age, income, positive financial prospects and housing tenure are found to be very significant and have the expected sign according to a life-cycle model for consumption. Regressions to explain the level of borrowing by individuals suggest that income is the main variable explaining crosssectional differences in unsecured debts. The increase in aggregate unsecured debt between 1995 and 2000 does not seem to be closely linked to changes in the determinants of debt market participation and has been mainly associated with the larger amounts borrowed by those with debts. Increases in income, better educational qualifications and improved prospects regarding the financial situation contributed to this result. The major part of the overall increase in unsecured debt is not explained by variables at the individual level, but is accounted for by common, unmodelled macroeconomic factors.

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Paper provided by Bank of England in its series Bank of England working papers with number 263.

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Date of creation: May 2005
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Handle: RePEc:boe:boeewp:263

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  1. Juan J. Dolado & Marcel Jansen & Juan F. Jimeno, 2005. "Dual employment protection legislation: a framework for analysis," Banco de Espa�a Working Papers 0510, Banco de Espa�a.
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  4. Fabio Canova & Matteo Ciccarelli & Eva Ortega, 2003. "Similarities and convergence in G-7 cycles," Economics Working Papers 924, Department of Economics and Business, Universitat Pompeu Fabra, revised Aug 2004.
  5. Berben, Robert-Paul & Locarno, Alberto & Morgan, Julian & Vallés, Javier, 2004. "Cross-country differences in monetary policy transmission," Working Paper Series 0400, European Central Bank.
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  8. David B. Gross & Nicholas S. Souleles, 2002. "Do Liquidity Constraints And Interest Rates Matter For Consumer Behavior? Evidence From Credit Card Data," The Quarterly Journal of Economics, MIT Press, vol. 117(1), pages 149-185, February.
  9. Ana del Río & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Banco de Espa�a Working Papers 0512, Banco de Espa�a.
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Cited by:
  1. Álvarez, Luis J. & Dhyne, Emmanuel & Hoeberichts, Marco M. & Kwapil, Claudia & Le Bihan, Hervé & Lünnemann, Patrick & Martins, Fernando & Sabbatini, Roberto & Stahl, Harald & Vermeulen, Philip & Vi, 2005. "Sticky prices in the euro area: a summary of new micro evidence," Working Paper Series 0563, European Central Bank.
  2. repec:etr:series:v:3:y:2012:i:11:p:341-350 is not listed on IDEAS
  3. Ottaviani, Cristina & Vandone, Daniela, 2011. "Impulsivity and household indebtedness: Evidence from real life," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 754-761.
  4. Lobna ABID & Zouari Dorra & Zouari Ghorbel Sonia, 2012. "Household indebtedness in Tunisia," E3 Journal of Business Management and Economics., E3 Journals, vol. 3(10), pages 341-350.
  5. Herrala, Risto & Kauko, Karlo, 2007. "Household loan loss risk in Finland – estimations and simulations with micro data," Research Discussion Papers 5/2007, Bank of Finland.
  6. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," Ruhr Economic Papers 0150, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. repec:eme:jecpps:v:5:y:2011:i:4:p:248-264 is not listed on IDEAS
  8. Adela Luque, 2005. "Skill mix and technology in Spain: evidence from firm level data," Banco de Espa�a Working Papers 0513, Banco de Espa�a.
  9. Thorvardur Tjörvi Ólafsson & Karen Á. Vignisdóttir, 2012. "Households’ position in the financial crisis in Iceland. Analysis based on a nationwide household-level database," Economics wp59, Department of Economics, Central bank of Iceland.
  10. Matthias Keese, 2009. "Triggers and Determinants of Severe Household Indebtedness in Germany," SOEPpapers on Multidisciplinary Panel Data Research 239, DIW Berlin, The German Socio-Economic Panel (SOEP).
  11. M.A. Akudugu, 2011. "Rural banks' financial capital and livelihoods development of women farmers in Ghana," Journal of Enterprising Communities: People and Places in the Global Economy, Emerald Group Publishing, vol. 5(2), pages 248-264, September.
  12. Chen, Nan-Kuang & Chen, Shiu-Sheng & Chou, Yu-Hsi, 2010. "House prices, collateral constraint, and the asymmetric effect on consumption," Journal of Housing Economics, Elsevier, vol. 19(1), pages 26-37, March.
  13. Ke Chen Chen & Mali Chivakul, 2008. "What Drives Household Borrowing and Credit Constraints? Evidence From Bosnia and Herzegovina," IMF Working Papers 08/202, International Monetary Fund.

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