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Mortgage Indebtedness and Household Financial Distress

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Author Info

  • Georgarakos, Dimitris

    ()
    (Goethe University Frankfurt)

  • Lojschova, Adriana

    ()
    (European Central Bank)

  • Ward-Warmedinger, Melanie E.

    ()
    (European Central Bank)

Abstract

Using comparable survey data from twelve European countries we investigate households' attitudes towards mortgage indebtedness. We find that a given debt burden creates much higher distress in Southern countries, France and Belgium, where fewer households have a mortgage outstanding relative to countries where a sizeable part of the population uses mortgage debt, like the UK, the Netherlands, and Denmark. This is the case after taking into account ppp-adjusted income levels, a rich set of socioeconomic characteristics, housing traits, country-specific constant terms, and household unobserved heterogeneity. We attribute part of this asymmetry to cross-country differences in the expansion of credit markets, which facilitate differential access to liquidity. Household's reported distress is also affected by excess indebtedness relative to the debt load of reference households, and crucially so in countries with less expanded mortgage markets. Thus it appears 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. Households' assessment of a debt burden therefore tends to diminish in more expanded credit markets and this process can be reinforced by reference to other households in a growing pool of debt holders.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4631.

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Length: 55 pages
Date of creation: Dec 2009
Date of revision:
Handle: RePEc:iza:izadps:dp4631

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Keywords: mortgage debt; credit markets; financial distress; household finance; peer effects;

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References

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Citations

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Cited by:
  1. Silvia Magri & Raffaella Pico, 2010. "The rise of risk-based pricing of mortgage interest rates in Italy," Temi di discussione (Economic working papers) 778, Bank of Italy, Economic Research and International Relations Area.
  2. 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.
  3. 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.
  4. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2012. "Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households," CEIS Research Paper 242, Tor Vergata University, CEIS, revised 18 Jul 2012.
  5. 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 252, National Bank of Belgium.
  6. 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 682, Central Bank of Chile.
  7. 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.
  8. 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.
  9. Matthias Keese, 2010. "Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness," Ruhr Economic Papers 0169, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  10. 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.

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