What drives mortgage default in Europe? The role of liquidity, equity and debt enforcement (Peter Lindner, Aleksandra Riedl)

This paper provides the first systematic cross-country evidence on mort gage default triggers among households in Europe. Using harmonized micro data from the Household Finance and Consumption Survey (HFCS) covering 18 countries, we study three mutually exclusive drivers of default: liquidity stress, negative equity, and the double trigger—when households face both simultaneously. The double trigger is by far the strongest predictor of default, raising the probability of non-performing loans by about 16 percentage points (pp). Liquidity problems alone and negative equity alone also increase default risk, but more moderately (by around 4–6 pp each). Importantly, the role of negative equity varies across institutional contexts: it is weaker in countries with strong debt enforcement. This pattern is consistent with single-country evidence showing that lower effective default costs increase the relevance of equity-related incentives. By providing the first harmonized European evi dence on how these trigger states translate into mortgage distress, the paper offers an empirical foundation for borrower-based macroprudential policies.