DANMARKS

NATIONALBANK

The wealth and debt of Danish families

Andreas Kuchler, Economic Research Division, Economics Department March 2015

Danish families have large balance sheets

- but net wealth comparable to other Nordic countries

Research agenda

Detailed microdata covering Danish families

Debt-to-income ratios higher among high-income

families

Debt is highly concentrated among high-income

families…

… and among families with large financial assets

Example 1 – Financial stability:

How robust are families to interest rate increases and unemployment?

Arrears rate for mortgage loans remained low

during financial crisis, and has since fallen

Few families fall into mortgage arrears, even

among those with tight finances

Macroeconomic stress tests : Only very modest

increase in no. of families in mortgage arrears

Families’ resilience to interest rate shocks

Example 2 – Macroeconomic stability:

Did a high debt overhang amplify the reduction in consumption during the

crisis?

Aggregate LTV ratio is at a high level

30

35

40

45

50

55

60

65

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Housing debt Home equity LTV ratio (right axis)

Kr. billion Per cent

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13

Leverage and consumption – what do we hope

to learn from microdata?

An example Household A Household B

Before the crisis

Home value ........................... 2.0 1.0 Debt ..................................... 1.5 0.5 Net worth .............................. 0.5 0.5 LTV ratio, per cent .................. 75.0 50.0

After the crisis Home value ........................... 1.8 0.8 Debt ..................................... 1.5 0.5 Net worth .............................. 0.3 0.3 LTV ratio, per cent .................. 83.3 62.5

Imputing consumption from income and wealth

data

𝐶 = 𝑌𝑑 − 𝑆

𝐶𝑖𝑚𝑝 = 𝑌𝑑 − ∆𝑁𝑊

Highly indebted households reduced

consumption more during the crisis

80

85

90

95

100

105

110

115

120

125

2007 2008 2009 2010 2011

Consumption, LTV in 2007 < 100 per cent Consumption, LTV in 2007 > 100 per cent

Disposable income, LTV in 2007 < 100 per cent Disposable income, LTV in 2007 > 100 per cent

Housing wealth, LTV in 2007 < 100 per cent Housing wealth, LTV in 2007 > 100 per cent

Index 2007 = 100

Regression results presented graphically

-15

-10

-5

0

5

10

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140

2007-08 2007-09 2007-10 2007-11

Change in consumption, per cent of income in 2007

LTV ratio in 2007, per cent

Possible interpretations

Consumption levels before and during the crisis

0.90

0.95

1.00

1.05

1.10

1.15

1.20

2005 2006 2007 2008 2009 2010 2011

Consumption ratio

LTV ratio in 2007 < 60 per cent LTV ratio in 2007 between 60 and 80 per cent

LTV ratio in 2007 between 80 and 100 per cent LTV ratio in 2007 > 100 per cent

Example 3 – Specific topics in financial stability:

Families with interest-only loans

Families with interest-only loans and high LTVs

have lower savings ratios

0

5

10

15

20

25

Liquid assets Pensions Mortgage credit Other Savings surplus

Deferred amortisation with LTV < 60 Deferred amortisation with LTV ≥ 60

Average savings and amortisation ratios, per cent of disposable income

Increase of savings Reduction of debt Total

Families with interest-only loans and high LTVs

have fewer liquid assets

0

10

20

30

40

50

60

70

80

90

100

Deferred amortisation with LTV < 60 Deferred amortisation with LTV ≥ 60

< kr. 100,000 kr. 100,000-250,000 kr. 250,000-500,000 > kr. 500,000

Per cent

Conclusions

Conclusions