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The determinants of unsecured borrowing: evidence from the British household panel survey

  • Ana del Río

    ()

    (Banco de España)

  • Garry Young

    ()

    (Bank of England)

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 cross sectional 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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File URL: http://www.bde.es/f/webbde/SES/Secciones/Publicaciones/PublicacionesSeriadas/DocumentosTrabajo/05/Fic/dt0511e.pdf
File Function: First version, May 2005
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Paper provided by Banco de Espa�a in its series Banco de Espa�a Working Papers with number 0511.

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Length: 43 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:bde:wpaper:0511
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  1. Donald Cox & Tullio Japelli, 1993. "The Effect Of Borrowing Constraints On Consumer Liabilities," Boston College Working Papers in Economics 228, Boston College Department of Economics.
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  10. Ana Del-Rí­o & Garry Young, 2005. "The impact of unsecured debt on financial distress among British households," Bank of England working papers 262, Bank of England.
  11. Dolado, Juan J. & Jansen, Marcel & Jimeno, Juan F, 2005. "Dual Employment Protection Legislation: A Framework for Analysis," CEPR Discussion Papers 5033, C.E.P.R. Discussion Papers.
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  14. 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.
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