Measuring overindebtedness in Europe

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Measuring over-indebtedness in Europe

• Brussels, 20 November 2009
• Didier Davydoff, Director of
• the OEE

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Introduction

• Context
• Expansion of access to credit in most EU
  countries
• Renewal of the financial services supply
• over-indebtedness focusing the public debate in
  the background of the financial crisis
• And yet, no standard definition of
  over-indebtedness nor a complete set of
  standardised statistics
• A common definition would allow policy making
• Comparing national data and evaluate public
  policies
• Empirical studies helping to implement better
  policies tackling over-indebtedness

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A sharp decrease of the recourse to credit

• Definition new credits minus repayments
  variation of outstanding debt
• Before the financial crisis a general trend
  upward, with exceptions
• Post-crisis the indicator tends to zero in all
  countries
• Strong correlation with dwelling prices
• Overall debt only one of the factors explaining
  the level of overindebetdness

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Stabilisation of European households debt (1)
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Stabilisation of European households debt (2)
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Definition of over-indebtedness

• Key elements for an over-indebtedness definition
  
• The unit of measurement is the household (defined
  by the pooling of income)
• Indicators must cover all financial commitments
  housing credit, consumer credit, bills
  (utilities, telecoms, rent, etc.), fiscal debt
• over-indebtedness is a persistent situation
• To remedy the situation by recourse to (financial
  and non-financial) assets is not possible.
• Standard of living The household is unable to
  meet contracted commitments without reducing its
  minimum standard of living expenses.

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Available statistics
I. Arrears
II. The number of debt settlements
III. Subjective indicators
IV. Economic indicators
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Available indicators
I. Arrears
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• Arrears 9,5 of European households
• Statistic available in most of European
  countries
• Refers to credit, but also to collective
  services, taxes, rent
• Depending on the country, different definitions
  number of arrears, length
• Interest of the EU-SILC survey harmonized
  questionnaire
• the indicator is the highest in Central Europe,
  with some exceptions.

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• Arrears on housing credit and rent 3,6 of
  European households
• In 2005, arrears were not more frequent in
  countries with high levels of indebtedness (
  Denmark, the Netherlands, United-Kingdom, Spain)

Source EU-SILC survey, data for 2005
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• Arrears on consumer credit 3 of European
  households
• - No systematic correlation with the use of
  consumer credit United-Kingdom under the
  European average.

Source EU-SILC survey, data for 2005
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Available indicators
II. The number of debt settlements
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Debt settlements
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Available indicators
III. Subjective indicators
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Subjective indicators
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• Subjective indicators of over-indebtedness 8
  of European households consider that the consumer
  debt service is heavy
• A measure of tolerance to credit?
• United-Kingdom consumer credit is twice higher
  than inthe euroe area and 9  only  of
  households are complaining

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Subjective indicators

• Source Flash Eurobarometer, Monitoring the
  social impact of the crisis public perceptions
  in the European Union, October 2009
• Subjective indicators of over-indebtedness 20
  of EU citizens stated that their household had
  financial difficulties (Eurobarometer July 2009)
• The most likely to declare financial
  difficulties Greek, Latvian, Portuguese and
  Bulgarian respondents
• The most likely to declare financial
  difficulties The least educated, manual workers

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Subjective indicators

• Source Flash Eurobarometer, Monitoring the
  social impact of the crisis public perceptions
  in the European Union, October 2009
• 18 of EU citizens stated that their household
  had had, at some time in the 12 months prior the
  survey, no money to pay ordinary bills, buy food
  or other consumer items.
• The most affected Romanians, and Latvians.
  (Eurobarometer, July 2009)
• The most affected 25-39 years old, the least
  educated and manual workers

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IV. Economic indicators
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Economic indicators
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Available indicators
Conclusion
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Composite indicators
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EU-SILC (European Statistics on Income and Living
conditions)

• Survey on income, social exclusion and living
  conditions.
• A panel survey which interviews the same
  households every year.
• Implemented in all European countries since
  2006.
• A wide-range of questions, including financial
  exclusion
• Households in arrears over the past 12 months
• Households assessments of their ability to make
  ends meet
• Capacity to face an unexpected financial shock
• Assessment by households of their financial
  burden

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Use various criteria to count overindebted
households
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Post-crisis trendsUnited-Kingdom

• Arrears superior to 2.5 of the amount of the
  loan for 205 600 loans (1,85 of all loans) at
  end of June 2009 (45 as compared to June 2008)
• Slower increase of the number of repossessions
• Income Support for Mortgage Interest available 3
  months after the first difficulties (instead of
  9)
• Towards a requirement for lenders to verify the
  statements of income of their customers before
  granting credit, in order to eliminate liar
  loans

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Post-crisis trends Spain

• Value of bad loans doubled over June 2008 and was
  multiplied by 4.8 over June 2007
• No more than 10 000 households benefitting from
  the theoretical moratorium on mortgage repayments

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Post-crisis trends France

• The number of new overindebtedness files
  increased by 19 over June 2008.
• Number of personal bankruptcies proceedings
  34

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Measuring over-indebtedness in Europe

• Brussels, 20 novembre 2009
• Didier Davydoff, Director of the OEE