The economic consequences of mortgage debt
Meen, G. (2011) The economic consequences of mortgage debt. Journal of Housing and the Built Environment, 26 (3). pp. 263-276. ISSN 1573-7772
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To link to this item DOI: 10.1007/s10901-011-9225-x
Unsurprisingly, a great deal of attention has been paid to the economic consequences of the credit crunch. However, this paper shows that the credit crunch was preceded by a strong build-up of mortgage debt internationally, which, in the long run, could turn out to be more significant than the credit crunch itself. Indeed, the debt build-up suggests that the credit crunch is more likely to reoccur, because highly-indebted households have weaker buffers to withstand unexpected shocks to their incomes or to interest rates. The paper presents a model that can explain the debt build-up and changes to the distribution of debt between existing owners and first-time buyers, which hinders access to home-ownership for the latter, even amongst those households who would be considered as credit-worthy.