Repayment capacity, debt service ratios and mortgage default: An exploration in crisis and non-crisis periods

O’Toole, Conor and Rachel Slaymaker
Authors registered in the RePEc Author Service: Conor M. O'Toole

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: This paper explores the changing relationship between current household repayment capacity and mortgage default during crisis and non-crisis periods in Ireland. We measure repayment capacity through changes in the current debt-service to income ratio to directly capture the affordability shock channel. We find that deteriorations in current debt servicing capacity have a positive and increasing effect on default which is dependent on the level of indebtedness or absorptive capacity. We find that the relationship between deteriorations in repayment capacity and default are worsened in crisis times due to the presence of negative equity and liquidity constraints in these periods.

Keywords: Mortgage default; Debt-Service-Ratio; Income shocks (search for similar items in EconPapers)
JEL-codes: D14 G21 R31 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Working Paper: Repayment capacity, debt service ratios and mortgage default: An exploration in crisis and non-crisis periods (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002272

DOI: 10.1016/j.jbankfin.2021.106271

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