Inside household debt: disentangling mortgages and consumer credit, and household and bank factors. Evidence from Italy

This paper contributes to the understanding of lending to households in three ways: we split household debt into its two main components (residential mortgages and consumer credit) and compare the factors most strongly associated with loan types; we analyse both demand-side (household) and supply-side (bank) characteristics related to loan types; and we use micro census data on all loans granted by all banks in Italy (bank-by-bank data) to all households across the Italian territory (province-by-province data). Our results show that household debt growth is related to the characteristics of banks as well as of households, and in different ways for mortgages and consumer loans. Mortgage growth is more significantly associated with bank capital and household income unequal distribution, while consumer credit is more significantly associated with bank profit components and household income level. We find that the relationship between loan growth and accumulated debt is negative for both types of loans, which is a reassuring result as it reduces concerns about over-indebtedness risk, even if we find that the effect is much larger for mortgage loans than for consumer credit.