Pockets of risk in European Mortgage Markets: then and now

Through the lens of detailed household micro data, we document the heterogeneous experiences of Euro area households in the run up to the financial crisis and after the bust. We provide evidence of a loosening of credit... [ view full abstract ]

Through the lens of detailed household micro data, we document the

heterogeneous experiences of Euro area households in the run up to the

financial crisis and after the bust. We provide evidence of a loosening of

credit standards in countries that experienced a property price boom-and-bust:

at the onset of the financial crisis, 40 to 50 per cent of new loans in

these countries had Loan-to-Value (LTV) ratios of over 90 per cent. High

LTV borrowers also exhibit higher debt service burdens, particularly among

low-income households. We find highly leveraged borrowers are more likely to

become credit constrained, even in non-boom-bust countries. In recent years,

despite rising house prices in some countries, we do not observe a similar

easing of credit standards. Rather we observe a shift in borrower composition

towards older and higher income borrowers across most countries.