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Mortgage Repayment Affordability across the Income Distribution

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  • Kelly, Jane

    (Central Bank of Ireland)

  • Mazza, Elena

    (Central Bank of Ireland)

Abstract

Mortgage affordability can be measured in various ways including on the basis of the monthly serviceability of the mortgage relative to income (MSTI). Using Irish micro data, we show that the resilience of borrowers has improved on this basis, especially lower income borrowers who no longer have the highest mortgage service burdens relative to net income, in contrast to the pre-crisis period.We find that higher MSTI levels are generally correlated with higher default rates, especially among lower income groups. When measuring mortgage instalments relative to residual income after reasonable living expenses, we again see a big reduction relative to 2008, with lower income borrowers exhibiting the biggest improvement in affordability.

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  • Kelly, Jane & Mazza, Elena, 2019. "Mortgage Repayment Affordability across the Income Distribution," Financial Stability Notes 15/FS/19, Central Bank of Ireland.
    • Handle: RePEc:cbi:fsnote:15/fs/19
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    References listed on IDEAS

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    1. Giovanni D’Alessio & Stefano Iezzi, 2013. "Household over-indebtedness - Definition and measurement with Italian data," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the Sixth IFC Conference on "Statistical issues and activities in a changing environment", Basel, 28-29 August 2012., volume 36, pages 496-517, Bank for International Settlements.
    2. John M. Quigley & Steven Raphael, 2004. "Is Housing Unaffordable? Why Isn't It More Affordable?," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 191-214, Winter.
    3. McCarthy, Yvonne, 2014. "Dis-entangling the mortgage arrears crisis: The rolw of the labour market, income volatility and housing equity," Research Technical Papers 02/RT/14, Central Bank of Ireland.
    4. Reamonn Lyndon & Yvonne McCarthy, 2013. "What Lies Beneath? Understanding Recent Trends in Irish Mortgage Arrears," The Economic and Social Review, Economic and Social Studies, vol. 44(1), pages 117-150.
    5. Kelly, Robert & O’Malley, Terence, 2016. "The good, the bad and the impaired: A credit risk model of the Irish mortgage market," Journal of Financial Stability, Elsevier, vol. 22(C), pages 1-9.
    6. Eoin Corrigan & Daniel Foley & Kieran McQuinn & Conor O’Toole & Rachel Slaymaker, 2019. "Exploring Affordability in the Irish Housing Market," The Economic and Social Review, Economic and Social Studies, vol. 50(1), pages 119-157.
    7. Luc Borrowman & Gennadi Kazakevitch & Lionel Frost, 2017. "How long do households remain in housing affordability stress?," Housing Studies, Taylor & Francis Journals, vol. 32(7), pages 869-886, October.
    8. Kelly, Jane & Mazza, Elena, 2019. "Mortgage servicing burdens and LTI caps," Financial Stability Notes 13/FS/19, Central Bank of Ireland.
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