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The Drivers of Household Over-Indebtedness and Delinquency on Mortgage Loans: Evidence from Italian Microdata

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  • David ARISTEI
  • Manuela Gallo

Abstract

This paper investigates the main determinants of household delinquency on mortgage loans in Italy. Using a sample-selection ordered choice model, we assess the impact of socio-demographic factors, loan characteristics and institutional variables both on the probability of delinquency in mortgage repayments and on the amount of arrears. Our results, based on microdata from the Italian component of the EU-SILC survey, allow to identify which types of households are more financially vulnerable and show the relevance of institutional factors in affecting the conditional intensity of arrears. Based on the predicted probabilities of arrears, we further analyse the relationship between interest rates on mortgage loans and observed borrower riskiness. Results point out that, in the whole period of analysis, Italian banks have accounted for household credit risk and have used risk-based pricing strategies in the process of mortgage loans granting.

Suggested Citation

  • David ARISTEI & Manuela Gallo, 2012. "The Drivers of Household Over-Indebtedness and Delinquency on Mortgage Loans: Evidence from Italian Microdata," Quaderni del Dipartimento di Economia, Finanza e Statistica 105/2012, Università di Perugia, Dipartimento Economia.
  • Handle: RePEc:pia:wpaper:105/2012
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    Citations

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    Cited by:

    1. Philip Du Caju & François Rycx & Ilan Tojerow, 2015. "Unemployment Risk and Over-indebtedness A Micro-econometric Perspective," Working Papers CEB 15-046, ULB -- Universite Libre de Bruxelles.
    2. Petra Gerlach-Kristen & Seán Lyons, 2015. "Mortgage arrears in Europe: The impact of monetary and macroprudential policies," Working Papers 2015-05, Swiss National Bank.
    3. Irina Stanga & Razvan Vlahu & Jakob de Haan, 2017. "Mortgage arrears, regulation and institutions: Cross-country evidence," DNB Working Papers 580, Netherlands Central Bank, Research Department.

    More about this item

    Keywords

    Mortgage delinquency; Household over-indebtedness; Ordered choice models; Risk-based pricing;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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