Mortgage Indebtedness and Household Financial Distress

55 Pages Posted: 15 Dec 2009

See all articles by Dimitris Georgarakos

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Adriana Lojschova

European Central Bank (ECB)

Melanie E. Ward-Warmedinger

European Central Bank (ECB); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

Multiple version iconThere are 3 versions of this paper

Date Written: December 2009

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.

Keywords: mortgage debt, credit markets, financial distress, household finance, peer effects

JEL Classification: D12, D14, G21

Suggested Citation

Georgarakos, Dimitris and Lojschova, Adriana and Ward-Warmedinger, Melanie E., Mortgage Indebtedness and Household Financial Distress (December 2009). IZA Discussion Paper No. 4631. Available at SSRN: https://ssrn.com/abstract=1522699

Dimitris Georgarakos (Contact Author)

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Adriana Lojschova

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Melanie E. Ward-Warmedinger

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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