Why Do European Home Owners Experience Loan Repayment Difficulties? Some Preliminary Results of Combining Macro and Micro Approaches

ABSTRACT

In recent decades, more and more European households have become home owners. Typically, this has been achieved with the help of a loan, repaid over a number of years to cover a proportion of the purchase price. Some households in some countries and at some times experience financial hardship in repaying the loan, which may lead to mortgage default and eventually repossession. Understanding why some individuals experience financial difficulties, and why that may be translated into housing loan difficulties, non-payment and then the loss of the home, has significance in both scientific and policy terms. The present paper reports preliminary results from ongoing work that aims to combine two approaches to the study of loan repayment difficulties. Reporting first on results from a study using macro data that identifies the importance of national institutional arrangements such as labour and financial markets, these are used second to inform analysis using micro data obtained from the European Community Household Panel survey.

KEY WORDS:

• Home ownership
• risk
• security
• insecurity
• Europe

Acknowlegements

This paper draws on the OSIS (Origins of Security and Insecurity) research project which has benefited from the financial support of the European Union under its framework 6 programme (CIT-2003-506007).

Notes

*Note the low number of arrears in some countries, see Table 2.

**Gross mortgage costs to income ratio.

*Actual repossessions are difficult to measure, since it is the custom in many countries to ‘force’ debtors in arrears to voluntarily sell their property (for higher prices!).

**Note that in these countries 90 per cent of all households do not have to make any mortgage payments; the subjective feeling of housing costs as a heavy burden are, probably, influenced by that fact as does the typical ambitions in these countries to repay their mortgage in relatively few years (∼ 12 years).

*significant p < 0.05.

**significant p < 0.01.

1. Note that these figures refer to net housing costs in euros; these figures are not corrected for purchasing power.

2. Although, it is fair to say that, these differences are of course partly forced by lenders' repossession efforts.