November 2004

IZA DP No. 1396: Income Volatility and Residential Mortgage Delinquency: Evidence from 12 EU Countries

published as 'Income volatility and residential mortgage delinquency across the EU' in: Journal of Housing Economics, 2005, 14 (3), 153-177

We investigate the socio-economic determinants of mortgage delinquency in 12 EU countries and observe that income volatility significantly increases the mortgage delinquency risk. This pattern even holds for borrowers with higher-income profiles if volatility in income is high enough. From this result we can draw the following conclusions: i) mortgage protection insurance policies might be failing to cover those borrowers most in need; ii) the existence of credit market imperfections, and; iii) the inability for a number of borrowers most at income risk to accumulate precautionary savings in order to meet mortgage payments when shocks in income arise.