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Mortgage Indebtedness and Household Financial Distress

Author

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  • 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.

Suggested Citation

  • Georgarakos, Dimitris & Lojschova, Adriana & Ward-Warmedinger, Melanie E., 2009. "Mortgage Indebtedness and Household Financial Distress," IZA Discussion Papers 4631, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4631
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    Cited by:

    1. 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.
    2. Olympia Bover & Jose Maria Casado & Sonia Costa & Philip Du Caju & Yvonne McCarthy & Eva Sierminska & Panagiota Tzamourani & Ernesto Villanueva & Tibor Zavadil, 2016. "The Distribution of Debt across Euro-Area Countries: The Role of Individual Characteristics, Institutions, and Credit Conditions," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 71-128, June.
    3. 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.
    4. McCarthy, Yvonne, 2014. "Dis-entangling the mortgage arrears crisis: The rolw of the labour market, income volatility and housing equity," Research Technical Papers 02/RT/14, Central Bank of Ireland.
    5. 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.
    6. Keese, Matthias, 2010. "Who Feels Constrained by High Debt Burdens? – Subjective vs. Objective Measures of Household Indebtedness," Ruhr Economic Papers 169, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    7. Sarah Brown & Pulak Ghosh & Karl Taylor, 2016. "Household Finances and Social Interaction: Bayesian Analysis of Household Panel Data," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(3), pages 467-488, September.
    8. Magri, Silvia & Pico, Raffaella, 2011. "The rise of risk-based pricing of mortgage interest rates in Italy," Journal of Banking & Finance, Elsevier, vol. 35(5), pages 1277-1290, May.
    9. 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.
    10. repec:bla:revinw:v:62:y:2016:i:4:p:628-649 is not listed on IDEAS
    11. 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.
    12. Marianna Brunetti & Elena Giarda & Costanza Torricelli, 2016. "Is Financial Fragility a Matter of Illiquidity? An Appraisal for Italian Households," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 62(4), pages 628-649, December.
    13. Kelly, Robert & McCarthy, Yvonne & McQuinn, Kieran, 2012. "Impairment and negative equity in the Irish mortgage market," Journal of Housing Economics, Elsevier, vol. 21(3), pages 256-268.
    14. Sónia Costa, 2012. "Households’ Default Probability: An Analysis Based on the Results of the HFCS," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
    15. Francesco D'Acunto & Marcel Prokopczuk & Michael Weber, 2017. "Historical Antisemitism, Ethnic Specialization, and Financial Development," CESifo Working Paper Series 6643, CESifo Group Munich.
    16. Sarah Brown & Karl Taylor, 2012. "Household Finances and Social Interaction," Working Papers 2012007, The University of Sheffield, Department of Economics.
    17. Piotr Bialowolski & Dorota Weziak-Bialowolska, 2014. "The Index of Household Financial Condition, Combining Subjective and Objective Indicators: An Appraisal of Italian Households," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 118(1), pages 365-385, August.
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    21. repec:eee:wdevel:v:98:y:2017:i:c:p:338-350 is not listed on IDEAS
    22. Manuela Deidda, 2015. "Economic Hardship, Housing Cost Burden and Tenure Status: Evidence from EU-SILC," Journal of Family and Economic Issues, Springer, vol. 36(4), pages 531-556, December.

    More about this item

    Keywords

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

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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