Working Paper: CEPR ID: DP10934
Authors: Olympia Bover; Jos Maria Casado; Sonia Costa; Philip Du Caju; Yvonne McCarthy; Eva Sierminska; Panagiota Tzamourani; Ernesto Villanueva; Tibor Zavadil
Abstract: The aim of this paper is twofold. First, we present an up-to-date assessment of the differences across euro area countries in the distributions of various measures of debt conditional on household characteristics. We consider three different outcomes: the probability of holding secured debt, the amount of secured debt held and the interest rate paid on the main mortgage. Second, we examine the role of legal and economic institutions in accounting for these differences. We use data from the first wave of a new survey of household finances, the Household Finance and Consumption Survey. Adjusting for household composition, we find substantial cross-country variation in secured debt outcomes and in their distribution across age and income groups. Among all the institutions considered, the length of asset repossession periods best accounts for the differences across countries in the distribution of secured debt. In countries with longer repossession periods, the fraction of people who borrow is smaller, the youngest group of households borrow lower amounts (conditional on borrowing), and the mortgage interest rates paid by low-income households are higher. Regulatory loan-to-value ratios, the taxation of mortgages and the prevalence of fixed-rate mortgages deliver less robust results.
Keywords: Fixed Rate Mortgages; Household Debt; Interest Rate Distributions; Loan-to-Value Ratios; Taxation; Time to Foreclose
JEL Codes: D14; G21; G28; K35
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| longer repossession periods (G32) | probability of holding secured debt (G32) |
| longer repossession periods (G32) | amount of debt held (H63) |
| tax exemptions for mortgage payments (H20) | likelihood of holding secured debt (G32) |
| regulatory loan-to-value ratios (G21) | amount of secured debt borrowed (G32) |
| better access to credit information (G21) | borrowing costs for older, less risky borrowers (G51) |