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Mortgage indebtedness and household financial distress

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  • Georgarakos, Dimitris
  • Lojschová, Adriana
  • Ward-Warmedinger, Melanie

Abstract

Using comparable survey data from twelve European countries from 1994 to 2001 we investigate households’ attitudes towards mortgage indebtedness. We find that a given debt burden creates much higher distress in countries with fewer mortgage holders relative to countries where a significant part of households uses mortgage debt. This effect is net of ppp-adjusted income levels, various socioeconomic characteristics, housing traits, country-specific constant terms, and household unobserved heterogeneity. We show that households evaluate their own debt burden partly in comparison with the debt position of their peer group and in a way consistent with social stigma considerations which lessen in significance as markets expand. JEL Classification: D12, D14, G21

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1156.

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Date of creation: Feb 2010
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Handle: RePEc:ecb:ecbwps:20101156

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Keywords: credit markets; financial distress; Household finance; Mortgage debt; peer effects;

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References

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Citations

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Cited by:
  1. Olympia Bover & Jose Maria Casado & Sonia Costa & Philip Du Caju & Yvonne McCarthy & Eva Sierminska & Panagiota Tzamourani & Ernesto Villanueva & Tibor Zavadil, 2013. "The distribution of debt across euro area countries: The role of individual characteristics, institutions and credit conditions," Working Paper Research, National Bank of Belgium 252, National Bank of Belgium.
  2. Giarda, Elena, 2013. "Persistency of financial distress amongst Italian households: Evidence from dynamic models for binary panel data," Journal of Banking & Finance, Elsevier, vol. 37(9), pages 3425-3434.
  3. Ramon Gomez-Salvador & Adriana Lojschova & Thomas Westermann, 2011. "Household Sector Borrowing in the Euro Area: A Micro Data Persective," BCL working papers 58, Central Bank of Luxembourg.
  4. Silvia Magri & Raffaella Pico, 2010. "The rise of risk-based pricing of mortgage interest rates in Italy," Temi di discussione (Economic working papers), Bank of Italy, Economic Research and International Relations Area 778, Bank of Italy, Economic Research and International Relations Area.
  5. Matthias Keese, 2010. "Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0169, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  6. Ivana Herceg & Danijel Nestić, 2012. "A New Cluster-Based Financial Vulnerability Indicator: The Analytical Concept and its Application for Stress Testing in a Post-Socialist Economy," wiiw Balkan Observatory Working Papers 100, The Vienna Institute for International Economic Studies, wiiw.
  7. Kelly, Robert & McCarthy, Yvonne & McQuinn, Kieran, 2011. "Impairment and Negative Equity in the Irish Mortgage Market," Research Technical Papers 9/RT/11, Central Bank of Ireland.
  8. Sofia N. Andreou, 2011. "The Borrowing Behaviour of Households: Evidence from the Cyprus Family Expenditure Surveys," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 5(2), pages 57-83, December.
  9. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2012. "Is financial fragility a matter of illiquidity? An appraisal for Italian households," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance), Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi" 12061, Universita di Modena e Reggio Emilia, Facoltà di Economia "Marco Biagi".
  10. Felipe Martínez & Rodrigo Cifuentes & Carlos Madeira & Rubén Poblete-Cazenave, 2013. "Measurement of Household Financial Risk with the Survey of Household Finances," Working Papers Central Bank of Chile, Central Bank of Chile 682, Central Bank of Chile.

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