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Repayment capacity, debt service ratios and mortgage default: An exploration in crisis and non-crisis periods

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  • O'Toole, Conor
  • Slaymaker, Rachel

Abstract

This paper explores the changing relationship between current household repayment capacity and mortgage default during crisis and non-crisis periods in Ireland. We measure repayment capacity through changes in the current debt-service to income ratio to directly capture the affordability shock channel. We find that deteriorations in current debt servicing capacity have a positive and increasing effect on default which is dependent on the level of indebtedness or absorptive capacity. We find that the relationship between deteriorations in repayment capacity and default are worsened in crisis times due to the presence of negative equity and liquidity constraints in these periods.
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  • O'Toole, Conor & Slaymaker, Rachel, 2020. "Repayment capacity, debt service ratios and mortgage default: An exploration in crisis and non-crisis periods," Papers WP652, Economic and Social Research Institute (ESRI).
    • Handle: RePEc:esr:wpaper:wp652
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    Cited by:

    1. Savvas Antoniou & Ioanna Evangelou & Theodosis Kallenos & Nektarios A. Michail, 2022. "Estimating the Mortgage Default Probability in Cyprus: Evidence using micro data," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 16(1), pages 37-49, June.
    2. O'Toole, Conor & Slaymaker, Rachel & McQuinn, Kieran & Coffey, Cathal & Eoin Corrigan, 2020. "Exploring the short-run implications of the COVID-19 pandemic on affordability in the Irish private rental market," Research Series, Economic and Social Research Institute (ESRI), number RS108, June.

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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