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 = 𝑌 𝑑 − 𝑆
𝐶 𝑖𝑚𝑝 = 𝑌 𝑑 − ∆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
