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The Determinants of Mortgage Defaults in Australia – Evidence for the Double-trigger Hypothesis

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  • Michelle Bergmann

    (Reserve Bank of Australia)

Abstract

I explore the determinants of mortgage defaults in Australia. Specifically, I use a novel two-stage hazard model to examine evidence for the 'double-trigger' hypothesis – that defaults require both an inability to repay the loan and the loan to be in negative equity. My results are broadly consistent with the double-trigger hypothesis. Ability-to-pay factors, such as regional unemployment rates and borrowers' repayment-to-income ratios, are found to be correlated with loans entering arrears. Transitions from arrears to foreclosure, on the other hand, are more closely linked to the extent of negative equity.

Suggested Citation

  • Michelle Bergmann, 2020. "The Determinants of Mortgage Defaults in Australia – Evidence for the Double-trigger Hypothesis," RBA Research Discussion Papers rdp2020-03, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2020-03
    DOI: 10.47688/rdp2020-03
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    References listed on IDEAS

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    Cited by:

    1. Anthony Brassil, 2022. "The Consequences of Low Interest Rates for the Australian Banking Sector," RBA Annual Conference Papers acp2022-04, Reserve Bank of Australia, revised Dec 2022.
    2. Bullock, Michele, 2023. "How well placed are households for interest rate increases," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 222-230.
    3. Jonathan Kearns & Mike Major & David Norman, 2021. "How Risky Is Australian Household Debt?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 54(3), pages 313-330, September.

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    More about this item

    Keywords

    mortgage; mortgage default; foreclosure; loan-level data;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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