Indebted households in the euro area: a micro perspective using the EU-SILC 2 nd European User Conference for EU-LFS and EU-SILC Mannheim 31 March-1 April 211 Ramon Gomez-Salvador, Adriana Lojschova and Thomas Westermann European Central Bank 1
Indebted households in the euro area: a micro perspective using the EU-SILC Why micro data? Using EU-SILC overview which variables? characteristics of the sample main results Conclusions 2
Why micro data? (1) Analytical perspective macro (mean) / micro (distribution) Policy perspective monetary policy transmission/financial stability Research perspective Reliable data on households wealth, income and consumption is an important input for researches and policy makers 3
Why micro data? (1I) Debt servicing ratio - Debt service to income ratio in the euro area over time and distribution of mortgage debt service to income ratio (%) Sectoral accounts ECHP (21) 12. principal repayment as a percentage of gross disposable income (in %) interest payment burden as a percentage of gross disposable income (in %) 3 4 1. 8. 6. 4. 2.. 1999 21 23 25 27 29 Density 1 2.2.4.6.8 1 Debt Servicing Burden ha24b/hi1) 4
Using EU-SILC: Overview EU-SILC EU-level: high country coverage info on HHs and individuals effort on comparability various waves (24-28) cross-section and longitudinal results limited info on financial variables breaks with respect to the ECHP some variables under revision some countries are missing in recent waves 5
Using EU-SILC: Which variables? (I) EU-SILC: focus on poverty and social exclusion Variables of interest: home ownership mortgage/consumer debt outstanding debt servicing arrears 6
Using EU-SILC: Which variables? (II) Financial variables at the household level Relevant financial variables EU-SILC Mortgage debt holding Consumer debt holding Mortgage interest repayments Mortgage debt service to income ratio (estimated) Total housing cost Income Late payments Mortgage debt burden Derived from a positive answer to the question on interest repayments on mortgage. Derived from the financial burden of the repayment of non-housing related debts (a heavy burden, somewhat of a burden and not a burden at all); current. Total gross amount of mortgage interest on the main residence of the household; it excludes payments on mortgages for repairs/renovation or for non-housing purposes, and repayments of the principal; annual amount over the previous 12-month period. Obtained by adding to the mortgage interest repayments an estimation of the repayments of the principal derived from the ECHP annual amount as percentage of income, which contains information on total mortgage service following: dsr_est i = isr i + csr g csr g = dsr g - isr g where dsr_est i mortgage debt service to income ratio estimated at household level; isr i mortgage interest repayments to income ratio at household level (EU-SILC); csr g mortgage capital (or principal) repayments to income ratio estimated at income/age groups level (three income groups and three age groups are defined: first/second, third and fourth income quartiles, and below 35, between 35 and 45 and 45 and above, respectively); dsr g mortgage debt service to income ratio at income/age groups level (ECHP); and isr g mortgage interest repayments to income ratio at income/age groups level (EU-SILC). It includes mortgage interest payments, structural insurance, mandatory services and charges, regular maintenance and repairs, taxes and the cost of utilities; monthly current cost. Total disposable household income: based on total gross household income (i.e. the sum for all members of gross personal income) minus taxes on income/wealth, transfers paid and social insurance contributions; annual income over the previous 12-month period. Includes PPP adjustment across countries. The income level breakdown also includes an HICP adjustment within countries (27 prices). Arrears on mortgage and on consumer loan payments; incidence over the last 12 months. Financial burden of the total housing cost (a heavy burden, somewhat of a burden and not a burden at all); current. 7
Using EU-SILC: Sample characteristics (I) Country coverage (27) Country # HHs Minimum effective sample Austria 6,86 4,5 Belgium 6,287 4,75 Germany 13,4 8,25 Spain 12,159 6,5 Finland 1,64 4, France 1,493 7,25 Greece 5,632 4,75 Ireland 5,68 3,75 Italy 2,899 7,25 Luxembourg 3,875 3,25 Netherlands 1,193 5, Portugal 4,36 4,5 Total 19,92 8
Using EU-SILC: Sample characteristics (II) Distribution of households by selected characteristics, euro area 27 change 27 change 24-7 24-7 By: By: Income level (27 prices) Working status <1, 7.9-1.7 employee 46.3.9 1,-2, 23.5-1.4 self-employed 9.5. 2,-3, 22.3.1 unemployed 4.6-1. 3,-5, 28.2 1. inactive 39.7.1 5,-1, 16.2 1.8 1 >1, 1.9.2 1 Age group Migration status below 35 15.7 -.7 non-migrant 91.3 -.4 35-44 2.1 -.5 inside EU 2.9.2 45-54 18.8.1 outside EU 5.9.1 55-64 16.8.5 1 65-74 15.8 -.2 75 and more 12.8.8 1 Housing status Education level Owner 62.9.8 low 31.8-3.3 Renter or other 37.1 -.8 medium 41.8 1.1 1 high 26.4 2.1 1 9
Using EU-SILC: Main results (I) debt incidence and home ownership mortgage debt incidence: is estimated to be 22.1% at the euro area level in 27 there is a high country heterogeneity: from around 1% in Greece and Italy to close to 5% in the Netherlands Mortgage and consumer debt outstanding (as percentage of households) 5 4 3 2 1 home ownership: is estimated at 62.9% at the euro area level in 27 country variation is less marked than for mortgage debt outstanding, from around 5% in Germany to around slightly above 8% in Spain 1 8 6 4 BE DE IE GR ES FR IT LU NL AT PT FI Euro area Home ownership (as percentage of households) 2 BE DE IE GR ES FR IT LU NL AT PT FI Euro area 1
Using EU-SILC: Main results (II) debt incidence by income 5 4 Debt outstanding rates - Percentage of households holding debt in the euro area by income levels 27 and change 24-7 (% and percentage points) M ortgage debt change 24-7 (RHS) Consumer debt change 24-7 (RHS) 1 8 3 6 2 4 1 2-1 <1, 1,- 2, 2,- 3, 3,- 5, 5,- 1, >1, -2 11
Using EU-SILC: Main results (III) debt incidence by socio-economic characteristics Age group 5 4 Debt outstanding rates - Percentage of households holding debt in the euro area by socio-economic characteristics 27 and change 24-7 (% and percentage points) Working status Mortgage debt Consumer debt 1 5 Mortgage debt Consumer debt change 24-7 (RHS) change 24-7 (RHS) change 24-7 (RHS) change 24-7 (RHS) 8 4 1 8 3 6 3 6 2 4 2 4 1 2 1 2-1 -2-1 -2-2 below 35 35-44 45-54 55-64 65-74 75 and more -4-2 employee self-employed unemployed inactive -4 Migration status Education level 5 Mortgage debt Consumer debt 1 5 Mortgage debt Consumer debt 1 4 change 24-7 (RHS) change 24-7 (RHS) 8 4 change 24-7 (RHS) change 24-7 (RHS) 8 3 6 3 6 2 4 2 4 1 2 1 2-1 non-migrant migrant inside EU migrant outside EU -2-1 low medium high -2 12
Using EU-SILC: Main results (IV) debt service Interest repayment ratio on mortgage debt (as a percentage of disposable income; median) interest repayments ratio: estimated at around 6% at the euro area level in 27 (excluding Germany), moving between 2.3% in Austria and 14.6% in the Netherlands 15 12 9 6 3 debt servicing ratio (estimated): at 22.4% at the euro area level (excluding Germany), being below 8% in Greece and Austria and well above 2% in France, Spain and Italy 3 25 2 15 1 BE DE IE GR ES FR IT LU NL AT PT FI Euro area Debt servicing ratio on mortgage debt (as a percentage of disposable income; median) 5 BE DE IE GR ES FR IT LU NL AT PT FI Euro area 13
Using EU-SILC: Main results (V) debt service by income Debt servicing ratio - Mortgage debt service to income ratio in the euro area by income levels 27 and change 24-7 (% and percentage points) 4 3 Interest payments ratio (LHS) Debt servicing ratio estimated (LHS) change 24-7 (RHS) 4. 3. 2 2. 1 1.. -1-1. <1, 1,- 2, 2,- 3, 3,- 5, 5,- 1, >1, 14
Age group 3 Using EU-SILC: Main results (VI) debt service by socio-economic characteristics Debt servicing ratio - Mortgage debt service to income ratio in the euro area by socioeconomic characteristics 27 and change 24-7 (% and percentage points) Interest payments ratio (LHS) Debt servicing ratio estimated (LHS) change 24-7 (RHS) 3. Working status 3 Interest payments ratio (LHS) Debt servicing ratio estimated (LHS) change 24-7 (RHS) 3. 15 1.5 15 1.5.. -15 below 35 35-44 45-54 55-64 65-74 75 and more -1.5-15 employee self-employed unemployed inactive -1.5 Migration status Education level 3 Interest payments ratio (LHS) Debt servicing ratio estimated (LHS) change 24-7 (RHS) 6 3 Interest payments ratio (LHS) Debt setrvicing ratio estimated (LHS) change 24-7 (RHS) 3. 2 4 2 2. 1 2 1 1.. -1 non-migrant migrant inside EU migrant outside EU -2-1 low medium high -1. 15
Using EU-SILC: Main results (VII) multivariate approach Mortgage Interest service oustanding (1) ratio (2) Constant -1.954 *** -2.324 *** Income level decile 3-4.267 *** -.372 *** decile 5-6.499 *** -.634 *** decile 7-8.657 *** -.869 *** decile 9.736 *** -1.4 *** decile 1.755 *** -1.276 *** Age group 35-44.144 *** -.363 *** 45-54 -.184 *** -.83 *** 55-64 -.477 *** -1.73 *** 65-74 -.778 *** -1.329 *** 75 + -1.184 *** -1.318 *** Education level medium.13 *** -.1 high.27 ***.176 *** Working status employee (temporary) -.35 *** -.58 self-employed -.141 ***.46 ** unemployed -.393 ***.6 inactive -.275 *** -.16 *** The impact of socio-economic characteristics on holding a mortgage and on the interest repayments to income ratio across euro area countries, 27 Mortgage Interest service oustanding (1) ratio (2) # Durable goods owned 2 -.28 **.15 3 -.172 ***.1 4.14 ***.29 Regional economic activity employment rate.9 ***.15 *** Household size # members.22 *** -.33 *** Marital status married.311 *** -.46 * separated.381 ***.229 *** widowed.332 *** -.41 divorced.293 ***.23 *** Gender female -.149 *** -.98 *** Migration status inside EU.212 *** -.397 *** outside EU.14 -.29 *** Country dummies yes yes # Observations 12,988 21,752 LR chi2(q) 27,464.7 - R-squared -.311 16
Using EU-SILC: Main results (VIII) financial distress % Households with high total housing costs to income ratio and with late payments % HHs with total housing Debtors with arrears, % Debtors with arrears, % costs ratio above 4% (mortgage debt) (consumer debt) (mortgage debt) 27 change 27 change 27 change 24-7 24-7 24-7 Overall 6.8 -.9 3.9 -.5 11.1 -.6 Country range [max,min] 15.8.9 18.3.8 43. 1.3 By: Income level (27 prices) <1, 6.7.4 16.7 5.5 25.3.2 1,-2, 26.8 5.5 7. -1.6 16.4 -.6 2,-3, 9.4.5 5.9. 12.4 1.3 3,-5, 3.4-1.4 3.1 -.3 7.7-1. 5,-1, 1.9 -.9 1.9 -.4 3.8-1.5 >1,.8 -.1 1.4.3 1.5-1.3 Age group below 35 9.3 -.4 4..2 12.6 -.2 35-44 6.6 -.8 4.4 -.4 12.4 -.8 45-54 5.2 -.9 3.9-1.3 11.9 -.4 55-64 6.8 -.5 3.1 -.9 8.9 -.3 65-74 5.7-2.4 2.7.2 6.9 -.5 75 and more 8.2-5.4 1.5. 8.5-2. Working status employee 5.4 -.6 3.3 -.2 9.8 -.3 self-employed 13.4-1. 6.7 -.5 12.7.6 unemployed 1.7-4.5 9.8-6.6 27. -3.9 inactive 7.6-1.1 3.3 -.5 9.2 -.8 Migration status non-migrant 6.6-1. 3.7 -.5 1.6 -.4 inside EU 5.2 -.5 4. -2.7 7.5 -.9 outside EU 11.8.9 7.9 -.9 17.7-3. Education level low 9.4 1.1 6.4. 16. 1.1 medium 6. -.9 4.1 -.2 1.9-1.2 high 5.8-2.3 1.7 -.9 6. -.7 17
Using EU-SILC: Main results (IX) financial distress % Households with arrears on mortgage debt and unemployment rate 7 6 5 4 3 2 1 arrears - LHS ur (lagged 1 year) - RHS 1995 1997 1999 21 23 25 27 29 12 11 1 9 8 7 6 5 Country variation 1995 1997 1999 21 24 25 27 28 Average 4.5 4.4 3.7 3.1 4.1 3.7 3.9 4.5 Min..9.5.2.5.3.4.8.7 Max. 23.7 2.7 2. 17.3 15.1 18.3 18.3 13.7 18
Using EU-SILC: Main results (X) persistency Changes in the perception of households with mortgage outstanding about housing costs as a burden between 24 and 27 (percent distribution) 27 perception 24 perception No mortgage Not burden Somewhat A heavy All debt at all a burden burden households No mortgage debt 93.2 2. 3.1 1.7 1 Not burden at all 19. 51.5 25.1 4.4 1 Somewhat a burden 17.6 2.9 47.8 13.6 1 A heavy burden 19.2 8. 3.4 42.4 1 All households 7. 9.8 13.7 6.6 1 Pro memoria: All households 24 69. 9.3 14.7 7.1 1 19
Using EU-SILC: Main results (XI) overall picture: euro area vs. US Household indebtedness: euro area vs. the US Mortgage Debt service ratio % Debtors with arrears outstanding rates (mortgage debtors) EA US gap EA US gap EA US gap US-EA (1) US-EA US-EA Overall 22.1 48.7 26.6 22.4 17.2-5.2 8.1 26.9 18.8 By income level (percentile) Less than 2 5.9 14.9 9. 27.2 42.2 15. 15.1 5.6 35.5 2-39.9 15.7 29.5 13.8 24.2 25.2 1. 11.9 4.9 29. 4-59.9 28.2 5.5 22.3 23. 2.2-2.8 8.9 28.5 19.6 6-79.9 38.8 69.7 3.9 21.1 17.3-3.8 5.3 18.2 12.9 8-89.9 38.3 8.8 42.5 21.3 14.6-6.7 6.5 13.2 6.7 9-1 41.1 76.4 35.3 2.6 9.7-1.9 4.1 5.6 1.5 By age group below 35 26.5 37.3 1.8 25.7 2.3-5.4 8. 32.9 24.9 35-44 38.9 59.5 2.6 22.2 17.4-4.8 9.4 28.5 19.1 45-54 29.8 65.5 35.7 21.3 16.1-5.2 7.1 23.3 16.3 55-64 17.6 55.3 37.7 2. 15.5-4.5 5.9 21.3 15.4 65-74 7.9 42.9 35. 18.5 16.5-2. 9.9 22.1 12.3 75 and more 2.3 13.9 11.6 16.2 23.1 7. 9.2 38.5 29.3 2
Conclusions The info available in the EU-SILC allows to analyse some aspects of household indebtedness (on an annual basis) Recent developments (24-27): mortgage incidence: slightly higher debt servicing ratio: marginally lower financial distress measures: marginally lower euro area/us comparison: lower level of exposure in the EA Looking forward the EU-SILC should solve some problems in order to guarantee country coverage and stability in the variables reported and, maybe, be open to redefine/improve some variables 21
Thank you very much for your attention. 22